Home equity loans are specifically for people who own their homes. Equity is the amount of money that has been paid on the principal of the original mortgage. The longer the homeowner pays on the loan, the greater amount of equity available. Although being approved for such a loan is not guaranteed, the chances are good that it will be approved. The bank's risk is small because the home is used as collateral on the loan. There is a minimum amount that can be borrowed, generally around $15,000. In most cases, you can only borrow up to 80% of the total equity value.

Advantages of a Home Equity Loan

Easier than a Traditional Loan- It is easier to obtain a home equity loan because of the collateral offering. The bank will require that a loan application be completed. There is still an approval process because the credit rating and other factors are taken into consideration by the lending institution. Proof of employment and income is necessary also. Beyond that, the home equity loan approval is easier and faster simply because there is little to no risk for the bank.

Use if for any Purpose- A home equity loan is available to be used for any purpose you wish. It is most often used for home improvements. Some people use it to consolidate their monthly bills to lower payments. Although not common, it can even be used to pay for a vacation. The way the money is spent is not monitored by the loan company.

Tax Deductible- One of the greatest advantages of home equity loans is that it can be used as a tax deduction. Interest paid on a home equity loan, used as a tax deduction, could mean a refund instead of having to pay in. This is not the case with all loans and it is an important thing to consider when deciding on what type of loan is best for you.

Lower Interest than Credit Cards- Credit cards are easier to use when purchasing big ticket items. They also come at a very high interest rate in most cases. The interest on a home equity loan is much lower. That means that the repayment will be much lower for the equity loan. That could mean thousands of dollars over time.

The limit on home equity loans can be as high as $100,000. The lending institution will consider several variables to determine the amount you can borrow at any given time. A home equity loan can be extended into a revolving loan much like a credit card. Once the original loan is paid off, the money will become available again. Consideration of a home equity loan is a smart choice.