What is Home Equity Loan

What is Home equity loan are 2nd mortgages that can be used for consolidating debt, financing a new home or improving and remodeling your primary place of residence. Home equity loans are similar to traditional bank loans. What makes them different is that the collateral for your home equity loan is your home and property itself, so it is your home that ultimately protects your loans. For homeowners, interest rates on home equity loans are below credit-card rates. For lenders, the delinquency rate and fraud losses are higher with credit cards than they presently are with home equity loans.

Closed-end home equity loans are very similar to your home mortgage: a specific amount of money is loaned to you and you’re required to make scheduled monthly repayments of principal and interest. These loans are often thought of as traditional second mortgages. The rates on home equity loans are fixed rates that are slightly higher than fixed rates on first mortgages.

Home equity loans are used when you want to borrow a specific dollar amount against the equity (current value)of your home. With so many homeowners gaining considerable amounts of equity and increased value in their homes over the past few years, home equity loans are a great way to help reduce overall debt and monthly loan payments. Applying for a home equity loan now, while interest rates are still reasonably low, can help to save thousands of dollars compared to other forms of credit such as credit cards, with rates around 13 and 14 percent. Home equity loans are loans that let you borrow against the equity of your home, which is used as collateral. Equity is the amount of money you have invested in your house so far.

Since home equity loans tend to have low interest rates, they are a good option for paying off high-interest debt. In addition, the interest rate you get for a cash-out refinancing is generally (but not always) lower than your home equity loan interest rate. Also, when you refinance your loan, you have to pay closing costs whereas with a home equity loan, you do not.