What is a home equity loan?
A home equity loan is a loan in which the borrower uses the equity in their home as collateral. Your home's equity is equal to its market value minus any mortgages or other liens owed on it.
In the early stages of your first mortgage loan, the majority of your monthly mortgage payments goes toward paying down the interest, but once you begin to make principal payments, the amount of equity in your home increases. Then, as your home appreciates over time, its equity grows even faster. The opportunity to use this equity is one of the benefits of homeownership.
Why do people use home equity loans?
As a financial tool, home equity loans can help you achieve many of your goals. The attractive rates can be lower than those of a personal loan or unsecured credit card-not to mention the added benefit of being tax deductible in most cases (always check with your tax or financial advisor before making any tax-related decisions).
A popular use of a home equity loan is for home renovations or repairs. By improving your home you are putting money back into your house, which can increase its value. Other reasons homeowners use home equity loans include:
- Adding a room as their family grows.
- Purchasing a new car.
- Adding or renovating a pool.
- Taking that dream vacation
- Paying for education
- Paying off outstanding debts
- Having emergency cash should unforeseen expenses arise.
If you are a homeowner looking to use your home as a financial resource, then a home equity loan may be right for you. Always shop online for the best home equity credit terms that meet your specific needs.
Source: Informa Research Services
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