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What is an equity loan?

A home equity loan, or second mortgage, will allow you to borrow money against the equity in your home. Homeowners can deduct interest on up to $100,000 when filing a tax return.

Types

Fixed-rate home equity loans give the borrower one lump sum of money, and interest stays the same during the life of the loan. Home equity lines of credit (HELOCs) let the borrower withdraw funds from the loan amount as needed, and the interest rate varies over time.

Benefits For You

Home equity loans provide easy cash and a lower interest rate than credit cards.

Benefits For Lender

These second mortgages allow lenders to collect more interest and fees on top of what they get from the first mortgage.

Pitfalls

Some people use home equity loans to pay off already-spiraling debt, but leave themselves with more debt to pay off in the long run. Using these loans to remodel your home is only wise if the changes raise market value enough to offset the loan.

Consideration

Make sure you can comfortably pay off a home equity loan before signing a mortgage agreement.

Source:

Investopedia.com: Home-Equity Loans: What You Need To Know

More Information:

Federal Reseve Board: What You Should Know About Home Equity Lines of Credit

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