• Home Equity Loans, An Interesting Option

    By:Sarah Dinkins

    What Is A Home Equity Loan?

    It is a loan you get based on the equity of your home. Simply put, it is the difference between the current value of your home and the amount you owe for mortgages. Obviously, you cannot do anything with the home until you have finished paying the instalments.

    Equity, according to this definition, varies as time goes by. You owe less, you have more equity. Your home acquires more value, you have even more equity. So, to make things clearer still, the expression equity is equivalent to second mortgage. Thus, for the first mortgage, the equity of the home is the full amount.

    The Differences, Versus A First Mortgage

    The payback Term is usually shorter, between 5 and 15 years, against a first mortgage, which can reach a term of 30 years. APR is quite similar, since the collateral is the same one as for a first mortgage.

    So, What Is A Home Equity Loan For?

    The use of a home equity loan is so ample that you can let your imagination run wild. And that is the principal feature: Use the loan for anything you want, no questions asked. It is something like a personal loan, but for a greater amount, a longer payback term and a lower APR.

    Some Examples Of Uses

    Paying off credit card debt is one. Youd be surprised at the savings you make on interest rate, changing from one type of debt to another. At the same time, this improves your credit rating, or at least it avoids the deterioration of your financial image.

    Schooling or university for your children. You might want to offer a lump sum for the entire term, for an interesting write off, saving some cash there and having a long time to pay for it. But make sure all your other basic needs are covered, before thinking about this use.

    Look Out For The Pitfalls

    Well, if you are deep in debt, a home equity loan is a comfortable solution to get out of it. But, will you stop the spiral of getting into more debt and recur to home equity to get out of it again? Reality is tough. There is a time when you run out of equity in your home and you get into serious trouble.

    Some Sound Advice

    Of all uses, it is most advisable to apply it to the improvement of your home, since this will add value to it, improving the equity, but also improving your situation. You could even consider a little insurance by keeping part of the equity loan for the improvement of the home, to keep the stakes at a comfortable height and use the rest for other purposes.

    Dont Let Yourself Be Caught Off-Guard

    Remember your home is at stake. It gives you a very comfortable type of loan, but keep your eyes open, especially if you are the compulsive type of spender.

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    Sarah Dinkins is an Expert Loan Consultant at Badcreditfinancialexperts.com where you can find other financial articles.