The Basics of Home Equity Loans

The Basics of Home Equity Loans
Home equity loans allow a homeowner to borrow money by pledging the house as collateral. Borrowers who want to borrow a relatively large amount of money or who don’t have good credit often find the home equity loan to be attractive.

Lenders may be more liberal because they view home equity loans as relatively safe. You can’t disappear with your house or hide it if you default on your loan, so the lender has a good chance of collecting the collateral. Also, you are likely to make your payments a priority if your home is on the line.

Advantages of Home Equity Loans

Home equity loans are attractive to borrowers for a few main reasons:

* They typically have a lower interest rate (or APR)
* They are easier to qualify for if you have bad credit
* Payments on a home equity loan may be tax deductible
* Borrowers can get relatively large loans with this type of loan

Common Home Equity Loan Uses

Borrowers use home equity loans for some of life’s larger expenses, because homes tend to have a lot of value to borrow against. For example, you find that a lot of borrowers want to

* Remodel or renovate the house
* Pay for a family member’s college education
* Finance the purchase of a second home
* Consolidate high-interest debts