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How to Understand Home Equity Loans

By Brown Ezilon.com Articles Published 06/15/2011 | Home Equity Loans

The exact definition of a home equity loan is the money you borrow from a certified loaning company using your property as a guarantee, calculated around seventy percent of the value of your home. This means that a home equity loan will not take the total value of your house into consideration; it will consider the amount you have already used to pay for it.

This means that to be able to obtain a home equity loan you will need to meet certain conditions when the moment comes to apply for one of these loans. Once your loan is approved then you may ask for a loan equivalent to the sum of money which you have already paid.

Home equity loans can be risky; this is why you should consider your options carefully before you apply for one. When applying for a home equity loan you are putting your home at a risk. You will have to carefully calculate whether you will be able to pay the minimum required every month in order to keep up with payments and not risk losing your house. This means that you should have a stable job that gives you a monthly income you can rely on; in fact most loaning companies will not give home equity loans to unemployed people. This is why you should look into this kind of loan carefully before you decide to apply for one.

It is also important you consider any unexpected events that could arise, taking these into consideration when you calculate how much you can pay back. If you do have a job, consider how stable it really is and if you will be able to rely on the income for some years to come.

If you do decide that a home equity loan is what you need then you should be aware that although there are risks attached to this kind of loan there are also advantages. One of the biggest is that the interests are low and fixed rates in addition to the fact that you can apply for tax deduction as these loans are long term loans and are paid for a minimum ten year span, this is if your collateral is your only and primary residence.

You should always read the terms and conditions carefully before you sign any loan contract and check whether there are any additional fees or extra upfront expenses. These home equity loans are similar to credit cards as they are in fact lines of credit which you can use when you need them. However, while with credit cards you run the risk of accumulating debts if you use your card without calculating your expenses, with home equity loans the risks are much higher for you are borrowing more money which may lead you to property loss and additional debts if used unwisely.

The main advantage of home equity loans is that they have lower interest rates compared to credit cards and are also considered secured debts.