Basics of Home Equity Loan

by : Jerry Leung

A home equity loan is considered a second mortgage. The lender will lend you money based on the value of your home. It can be something useful if you find that you need a relative large amount of money since the value of your home will not be very small.

In fact, a lot of people will try to use home equity loan to pay off the debt they have. It can be a good way especially when the debt you are having is of very high interest rate. Usually, the chance is that you can have a lower interest rate. And in this case the monthly payment will be a lot lower since the interest is lower.

The above notion will fit you very well if your have a lot of credit card debts. As a matter of fact the interest rate of a credit card is usually very high. When comparing with the interest rate of home equity loan, the interest rate is really very low. You will be able to save a lot of interest to move your debts to home equity loan. And this will help you to settle the debts in a shorter period of time.

However, you have to be careful before you make the decision to have the loan. You need to make sure that you will have enough money for the payment every month. You may end in losing your home / house if you fail to pay the monthly payment. As a consequence you should never take the risk of losing your house if you cannot be sure that you can settle the payment every month! You should think of other options I under this circumstance.

Sometimes you may need something more flexible. In this case you can consider a home equity line of credit. It will allow you to borrow more money when you need. It can be excellent when you do not know how much you need at the beginning since you can borrow more when you find that you need some more money.

If you would like to consolidate your debts, home equity loan can be a perfect choice for you. However, as discussed, you should always remember that you are in fact using your asset (in this case your house) to exchange for loans. You will eventually lose your home if you are not able to settle the monthly payment!