A home equity loan is a secured loan with your home being the collateral. This type of loan is typically used for major one-time expenses such as purchasing a vehicle or debt consolidation.
Your monthly payment and interest rate are usually fixed and set at the time the loan is made. The interest rate will not be the same as on your original mortgage since rates rise and fall constantly.
This differs from a home equity line of credit because you get all the money up-front and have the convenience of a fixed monthly payment.
Keep in mind that you will need really good credit to be considered for this type of loan. If you are approved you will be allowed to borrow typically between 70-80% of your home’s value minus any amount you currently owe on your home.
When the economy is bad, your home will not be valued as high and you won’t be able to borrow as much. Conversely, when the economy is good and home values soar, you’ll be able to borrow more.
The main reason people choose to use this type of loan is that the interest is tax deductible. Depending on the length of the loan and what you’re using it for, this can make sense.
However, be aware that your home is at stake until both your original mortgage and this loan is paid in full. Ensure that you have a solid budget in place and can afford to make both payments comfortably.From Home Equity Loan to Banking Information