Home equity loan

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A home equity loan is a form of debt in which a borrower agrees to use his or her home as collateral to borrow a certain amount of money. This amount varies depending on the amount of money requested for the loan and also the value of the property in question that is being used as collateral.

Home equity loans are used for a variety of different purposes. They may be used to finance home remodeling, for instance. Many people buy a home with the intention of renovating it during the years to come, whether they do it as one major all-consuming project at one time, or choose to gradually restore the home over a number of years. Home equity loans would be more likely to be taken by those who wish to make the remodeling project a major project that would be completed in a relatively short amount of time in comparison to the gradual method.

These loans may also be used to finance a college education for a family member or for the owner of the house, themselves. A home equity loan is usually only given to someone that has a very good credit history and a good current standing with the bank. This type of a loan would be a good way for a non-traditional student to go back to school if their finances were in relatively good shape in the first place, but there was a need for extra money for college tuition. This method could also be used to finance college education for a child of a borrower, although many choose student loans for their lower interest rates.

As far as financing a college education goes, it is much better to use student loans rather than another type of loan to finance this endeavor. The reason for this is that any home equity loan would most likely have a much higher interest rate attached to the payments than a typical student loan. Many student loans are financed and backed by the full faith and credit of the Government of the United States of America. This makes these loans very stable and a good choice for a young person needing financial help during college. There is no chance of the young person being talked into an unwise loan because the government is the provider of the loan. This extra assurance makes these federally-backed loans stable, dependable and relatively easy to consolidate, if need be.

One of the differences between a traditional mortgage and a home equity loan is the interest rate. Typically mortgages are at a fixed rate. Home equity loans are usually fixed rate loans. Because of this, people looking to use their home equity to help finance renovations or other projects will often refinance in order to lock in the loan at a particular rate.


A home equity loan is secured debt--secured by the equity you have in your house. Normally these are low interest loans because you have a solid asset backing up the loan. In many cases this may be a better way to purchase an automobile because you can take advantage of a lower interest rate that you may be able to get from another lender.

Home equity loans work in a similar way to a home equity line of credit. The difference is that the home equity line of credit will typically be for a variable amount while a home equity loan will be for a fixed amount.

One of the popular uses for a home equity loan is as a do it yourself debt consolidation loan. You take out a loan at the lower home equity rate and use it to pay of credit cards and other debt that are at a higher interest rate. So if you have $5,000 in credit card debt at 35% interest, you replace it with a $5,000 home equity loan at maybe 7%. There are dangers in doing this, but for a disciplined person it can be a way to pay off the debt much faster because less money is going toward interest.

A reverse mortgage is a type of home equity loan.