What is a Home Equity Loan?

by Kelly Richardson
Loan Page Columnist

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There are times when homeowners find themselves in need of additional cash. Perhaps they want to build an addition on to a home. Or maybe the money will go towards debt consolidation. Whatever your financial needs may be, a home equity loan may be just the thing to help you.

A home equity loan is an arrangement that you make with your lender based on your existing mortgage. As you pay off your mortgage, you continually build credit with your lender. This mortgage credit can be borrowed against by you in order to get cash. A home equity loan affects your current home mortgage in several unique ways that you need to know about.

A Home Equity Loan and Your Current Mortgage

Here are some of the characteristics of a home equity loan, as well as what borrowing against your current mortgage will mean for your repayment.
  • » Mortgage Term. Your home equity loan is a fixed-term loan that is repaid usually in either 20 or 30-year periods.
  • » Mortgage Rate. A valuable benefit to a home equity loan is that you can usually secure a low, fixed rate of repayment.
  • » Mortgage Fees. If you get your home equity loan from your existing lender, you can skip many of the usual fees associated with loans.

So now that you have decided to adjust your mortgage and take out a home equity loan, you need to think about how you will use the money. Because your home equity loan will come to you in one lump sum, there is no limit to where and how you can use the money.

Using Your Home Equity Loan

Here are some suggestions.
  • » Debt Consolidation. Many homeowners use their home equity loan to pay off high interest rate credit cards.
  • » Home Renovations. Using your home equity loan for home renovations can increase the value of your home for resale.
  • » Emergency Cash. Using a home equity loan for emergency cash is a good way to avoid going further into credit card debt.

Ask your mortgage specialist about their current offers for home equity loans. You will be surprised at how easy and fast the process can be.

About the Author

Kelly Richardson covers the local education and technology scenes in major cities across the country. His articles appear in a variety of respected educational journals, periodicals, and e-zines.

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