Tips on Home Equity Loans

You have a mortgage to meet and a child that is planning on going off to college next fall. Your savings account is not enough to cover your child's college expenses and your mortgage. Offers of home equity loans fill your mailbox on a daily basis. Is this the solution to your problem?

A home equity loan may be the answer to your dilemma depending on several factors. It is always interesting to see the low qualifying criteria lenders market to homeowners. One of lender's favorite tactics is that of encouraging homeowners to get the use the proceeds from the home equity loan to pay off high interest credit cards. Sounds great, but please consider that you must take the chance of leveraging the most important asset you have. That asset would be your home!

Let's cover the basics of the home equity loan. We will also go over the advantages and disadvantages that will be critical for making your decision.

What is a home equity loan? A home equity loan is where you use your home as collateral to secure funds from a lender. A home equity loan is also commonly referred to as a second mortgage. Home equity loans are either for a fixed amount or for a revolving line of credit. The line of credit is restored as the principal is paid.

Let's take a look at the advantages of a home equity loan.

Home equity loans have very competitive interest rates. The rates are lower because the borrower is more inclined to repay the loan in order to avoid losing his home. Homes are also assets that have a fairly stable value.

Home equity loans will provide you with tax savings. The interest on home equity loans is generally tax deductible up to $100,000 while the interest on a credit card and personal loans are not deductible at all.

Let's now take a look at the disadvantages of a home equity loan.

If you default on the repayment of the loan, you may end up losing your home! When you accept a home equity loan, the lender places a lien on you home that can allow them to take away your home.