| A home equity loan is simply borrowing on the | | | | tax deductions on interest repayments. Moreover, |
| difference of the value of your home and the | | | | since a home equity loan has the house as collateral, |
| outstanding mortgage on the house. Lets say, you | | | | the interest rates on such loans are normally lower |
| have bought a home worth $50,000 some time back, | | | | than on other types of loans. |
| after making a down payment of $5,000. The value of | | | | Due to the nature of a home equity loan, borrowers |
| your home has now appreciated to $60,000. The | | | | normally belong to the middle-aged bracket earning a |
| difference between the present value of your home | | | | decent income. As a result of this, the default rate |
| ($60,000) and the outstanding payment ($45,000) is | | | | among home equity loan borrowers is very low. |
| $15,000. This is the amount of the home equity loan | | | | There are two broad types of home equity loans: |
| that you can apply for. | | | | Fixed loans, which are very good for people who |
| Home equity loans are normally called second | | | | want some discipline in their repayment schedules. |
| mortgages, as they are normally for a lesser tenor | | | | These are just like a normal term loan. |
| than an existing first mortgage. However, one "caveat" | | | | Line of credit, (HELOC) which offers more flexibility to |
| that borrowers need to be very careful of is that in | | | | the borrower in terms of repayment schedules and |
| the event of default, the lender can foreclose on the | | | | floating rate of interest. |
| house. Home equity loans have become hugely | | | | So, still waiting to remodel your home or buy that set |
| popular recently because of falling interest rates and | | | | of wheels? Go for that home loan now! |