UNDERSTANDING A HOME EQUITY LOAN

Posted by DB Wilson on Friday, June 3rd, 2011 at 3:50pm.

Many people have heard the term “home equity loan,” but not everyone understands what it is, or how to use it. If used correctly and responsibly, a home equity loan can consolidate and ease your debt.

As you begin to pay back your mortgage, you own more of your house, and the bank owns less. This is called building equity—equity being the percentage of the house that you own. When taking out a home equity loan, you are using the equity you have built as collateral.

Often people understand the general idea of a home equity loan, but they don’t know the benefits of using one. When taking out a home equity loan is often smarter for paying off debt than other types of borrowing. The interest you pay on a home equity loan is usually tax deductible, and if you have several debts, it is sensible to consolidate them into one home equity loan. This is a smart move because the interest rates on home equity loans are often much lower than traditional loans.

There are two different types of home equity loans. Fixed rate loans offer one, large payment to the borrower, which is then repaid over time at a fixed interest rate. On the opposite end, a home-equity line of credit (HELOC) is a variable-rate loan, in which borrowers are approved for a certain limit and can withdraw money, but with a lower, tax deductible interest rate than a traditional credit card. Both of these types of loans can be valuable tools for responsible borrowers. However, it is important to understand that a home equity loan can only be borrowed for a set amount of time, generally ranging from five to 15 years.

Similar to dipping into the cash in your savings account at a time when you really need it, taking out a home equity loan allows you to pay off a high interest credit card, send your child to college or finally put that addition onto your house. However, sometimes those who are unable to budget or curb spending and find themselves in debt will take out a home equity loan as a fast solution. Be aware of the reason you need to take out the loan, and never take out a loan for more than the house is worth.

For more information on home equity loans, please contact RE/MAX of Boulder, Inc., 303-449-7000 or RE/MAX of Boulder, Inc..

RE/MAX of Boulder, Inc. located on the corner of Canyon and Folsom, is nationally and locally recognized as one of the most successful real estate offices in the industry. Nationally, they are one of the "Top 500 Power Brokers in the United States" as listed in both National Real Estate & Relocation and Real Trends magazines. Regionally, for the 4th year in a row, the company has been named the #1 RE/MAX office in America for Single Office Closed Volume. They can be reached at 303.449.7000 or visit http://www.BoulderCO.com. Connect with them on Facebook and Twitter, search remaxofboulder. Subscribe to their YouTube channel and see videos of all their homes for sale at http://youtube.com/remaxofboulder

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