All About Home Equity Loans-

Saturday, April 08, 2006

All ABout Home Equity Loans

Home Equity Loans have become an increasingly popular way for consumers to borrow money, especially with the continued increases in interest rates on credit cards. Your home equity is the percentage of the home that you own; it’s the difference between the current value of the home and the amount you still owe on your mortgage. Home equity loans have allowed millions of Americans to take control of their debt. The average household now has nearly $10,000 in credit card debt, and borrowing against the value of your home can allow you to pay those bills through debt consolidation.



Home equity loans offer several advantages over other types of consumer loans. Interest rates tend to be lower, and are often half the rate of credit card loans. The interest on a second mortgage is usually deductible, something other types of loans haven’t offered in more than twenty years. A line of credit can offer the opportunity to borrow money on a revolving basis. And the payment schedule can be arranged over a specific amount of time, which offers the homeowner the convenience of scheduled payments as well as affordability.

Banks and other mortgage lenders generally like issuing home equity loans. For most people, their home is their biggest single asset, and they are reluctant to lose it. As such, the default rate on such loans is much lower than average; about 2% typically. For the lender, this type of loan offers greater assurance that the loan will be repaid. The borrower benefits from the lower interest rates offered with “safer” loans.



What sorts of things do people do with their loans?



Debt Consolidation - The homeowner can use the money to pay off other high-interest debt, such as auto or credit card bills.
Home Improvement- Using the money to remodel your kitchen or to add a room or patio to your home can increase its value
Student Loan Repayment - You may wish to pay off educational expenses at a lower interest rate or over a longer period of time.
Medical Bills - Low interest rate loans with deductible interest are ideal for paying off unexpected medical expenses.

There are typically two types of equity loans - the standard term (or “closed-end”) or lines of credit, which allow you to borrow again and again. Both have advantages and disadvantages, and you’ll have to decide which type is right for you.

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