A Home Equity Loan, also known as a cash-out loan, lets a homeowner borrow money by leveraging their home equity, or the amount of money they have invested in owning their home. A Home Equity Loan can be either a fixed rate mortgage or a variable rate mortgage.

Debt consolidation, home repair, medical bills, and big expenses such as college tuition are all smart reasons to consider applying for a Home Equity Loan. The interest on a Home Equity Loan is usually tax-deductible as compared to other forms of consumer credit such as auto loans or credit cards.

Eliminate your Debt with Debt Consolidation

One of the most effective tools for debt management is debt consolidation. By combining several debts into one, you can lower your monthly expenses. You have the convenience of dealing with one bill, one payment, and one company.

Home Equity Loan Benefits

There are many reasons a home equity loan is a great source of funds:

• Tax deductible interest
• Lower interest rates vs. credit cards rates
• No private mortgage insurance
• You may use the loan for any purpose
• Debt consolidation
• Medical expenses
• College tuition
• Automobiles

There are advantages and drawbacks with every loan. What distinguishes home equity loans from other non-secured, or credit card loans, are the interest and tax savings. Since the loan is secured by the equity in your home it presents less risk to the lender.

This reduced risk allows lenders to offer a lower interest rate than a non-secured loan or credit card.

One of the biggest risks of a home equity loan is the chance of losing your home if you are not able to pay your mortgage payment. If you are unable to pay back your remaining debt to the lender, your home can be liquidated so the lender can collect the money due. A way to prevent losing your home is to avoid borrowing more than what you can pay back. This is a very important reason that you find a mortgage provider that will prepared a loan solution that best suits your financial needs.

While taking out a loan using your home can be to your advantage, beware of loan providers who may persuade you with a loan that you are unable to repay. Time and again, these lenders offer products that bear high interest rates, expensive fees, and may be designed in a way that causes you to fall behind on the note. It may have a large balloon payment owed at the end of the term or an adjustable payment. If you fall behind, or are unable to refinance your note, the lender can take your home by way of foreclosure. Once foreclosure proceedings start, most people never get their homes back. If you are a homeowner with equity, you are a potential target for this type of scheme. Knowing what to look for and how to protect yourself can keep you from losing your home.

Protect Yourself by Being Informed – The Do’s and Don’ts     

DO: 

• Research and compare the different loans available - find the loan that meets your specific needs
• Consider the big picture: look at the interest rate and fees, not just the monthly payment amounts
• Read the entire loan contract before you sign it
• Avoid loans with balloon payments that come due at the end of the loan term.
• If you are getting a loan for home improvements, find and work with your own contractor and lender to ensure they are reputable. Ask for three referrals from their past clients.
• Know what is in the contract before you sign it

DON’T:

• Don't take out a loan made solely on the equity value and not on your ability to make the monthly payments.
• Don't sign any contracts or paperwork that have blank spaces.
• Don't borrow more than you need. Your home’s equity can be your greatest asset.
• Don't take out a loan from an unknown salesperson make sure that the person you are dealing with is licensed and maintains a high standard of ethics. Ask for three referrals from their past clients and check with the California Department of Real Estate or the BBB
• Don't judge only by the monthly payments – consider the total cost
• Don't succumb to aggressive sales tactics
• Don't sign forms written in a language that you don't understand
• Don't sign a contract if it is not what you anticipated - Always be prepared to walk away! 

Factors to Consider Before You Borrow 

Can I afford this loan?
Just because you qualify for a loan does not necessarily mean you are truly able to afford one. Make sure you are taking on a monthly payment that you can afford. 

What will I do if I lose my home?
Most people don't have another place to go if they lose their homes. If you have to buy a smaller house or rent an apartment, you'll need a down payment or a deposit. Carefully consider all the possibilities before you decide to obtain a second mortgage or home equity loan and take advantage of the free information available from nonprofit organizations and governmental agencies. It is easier to learn to protect yourself now than rebuild your equity and credit rating later. 

Know Your Rights as a Homeowner
Even if you have signed a contract, you do have a specified amount of time to reconsider. The law gives you three business days from the date you sign a home equity or high cost home loan contract to cancel. You can cancel for any reason at all, but must do so in writing within the three days.

Home Equity Comparison Chart

Not sure which home equity loan product is right for you? This Comparison Chart shows the benefits and features of each home equity loan.