Home Equity Loans

Many people have a large amount of equity in their home.  Equity is the difference between what you owe on your home and how much you could sell the home for.  You can get a home equity loan or second mortgage by using your equity as collateral.  Be sure to compare several lenders for interest rates and fees associated with the loan.

People might consider a home equity loan for many reasons, some of them good, and some of them not so good.  Remember, you are putting your home up as collateral, and if you fail to make the payments on your home equity loan you can lose your house.  Generally, you should only get a home equity loan to make a permanent improvement in your life.  For instance, some good reasons to take out a home equity loan might be to put an addition on your home, to purchase a rental property, to finance the start of a well thought out business.  Some acceptable reasons might be to put your child through college (a permanent improvement in your child's life), or to pay some exorbitant medical expenses from an unforeseen illness. 

Unacceptable reasons to take out a home equity loan are vacations, new cars, furniture and appliances, and believe it or not, paying off credit cards to "reduce the interest I'm paying".  The problem with using a home equity loan to reduce the interest rates you are paying is that people usually find themselves racking up credit card charges again as soon as the old ones are zeroed out.  Only now you have no equity in your home, and a 2nd mortgage.  If you are insistent on paying off your credit cards with a home equity loan, that is OK, but only if you cut up the cards before getting the loan.  Then after you pay the cards off with the money from your home equity loan, you must close all the credit card accounts.  For purchases that require the use of a credit card (online, pay-at-the-pump, etc), instead use a debit card which takes money directly from your checking account.  Or better than that, use cash.  A home equity loan can be a great way to improve your life, but it is important that you are making a permanent improvement.  Not a temporary one.

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