A home equity loan is a type of loan that you as a home owner can take out by putting up the equity in your home as collateral. A home equity loan is also a secured debt as it is essentially debt against your own property, which you have ownership of. If you require a substantial sum of money in a large amount, then you may want to consider applying for a home equity loan.

Home Equity Loans Can Help With Expenses

A home equity loan can be of great assistance to you when it comes to covering large expenses. Some of the ways you can use a home equity loan include:

Pay off your debts – If you are currently burdened with a huge amount of debt stemming from credit cards, car and student loans etc., then a home equity loan can help to consolidate all of your debts into one loan. This will also allow you to have one monthly payment amount instead of several different ones. While debt consolidation doesn’t eliminate the total amount you owe, it does make your finances more manageable. Cover unexpected medical bills – It’s hard to financially plan for unforeseen emergencies, especially when they’re health related. Having savings set aside is a great backup plan, however if you’re having a hard a time making ends-meet as it is, it’s not possible to set aside extra funds incase of medical emergencies. A home equity loan can help you handle medical related expenses, should they come up unexpectedly. Home renovations – If you want to remodel your home or make some additions to it but don’t have access to sufficient funds to make it happen, you can apply for a home equity loan to finance the home improvements. Updating your home can make the value of your property rise substantially, which will come in handy if and when you decide to sell it. College education – Financing college is a huge commitment and it’s also really tough if you have a large family. A home equity loan can help finance a member of your family’s college education or pay off their student loan. As the saying goes, “a mind is a terrible thing to waste!” Family Vacation – Who couldn’t use a vacation after working hard all year? Isn’t there always such a great deal on vacations/cruises when you don’t have access to money and when you actually do, the prices are through the roof! You don’t have to pay through your nose for a vacation. If there’s a good deal and you want to take advantage of it but don’t have the cash upfront, you can always opt for a home equity loan and finally go on that dream vacation with your family.

Home Equity Loan vs. Home Equity Line of Credit

You may be wondering what the difference between a home equity loan and a home equity line of credit is. A home equity loan is a one time lump sump loan based on the equity of your home. Once you have paid it off, you won’t have access to that loan again. A home equity line of credit on the other hand, is a loan that is fixed for a certain amount. You have access to the entire line of credit even when your outstanding balance is zero.

Interest Rates and Tax Benefits

Your home equity loan can be taken out on either a fixed or adjustable interest rate. When you take out your home equity loan on a fixed rate, the interest rate remains the same for the entire period of your loan. Adjustable rates are not fixed and therefore vary based on specific factors. An added benefit of a home equity loan is the fact that the rate charged on the loan is generally tax deductible, which always works to your advance come the end of the year.