Understanding Home Equity Loans and Home Equity Lines of Credit

Equity is the difference between the balance owed on a mortgage and the current actual value of the home.  A home equity loan is a loan a homeowner can take out for the equity they have in their home.  A home equity loan is simply a way for a homeowner to have access to the money earned from the home without having to sell it. 

Sometimes home equity loans are called second mortgages because they have the same requirements as mortgages.  You will have to meet the same qualifications to be approved for the loan and you will have to pay it back in monthly payments including interest. 

Another option similar to a home equity loan is a home equity line of credit.  They way this would work is that the lender would approve you for a line of credit up to the amount of equity built-up in the home.  You could then access this line of credit anytime you wanted to.  The advantage to this is that you are only charged interest on the amount of money that is actually used. 

Home equity loans and lines of credit can be taken out to use for anything.  The more common uses are for repairs and/or upgrades to the home and to put children through school.  It is important to be sure you have the means to pay off the loan before you apply for it.