What is a home equity loan?

If you have built some solid equity in your home, a home equity loan lets you exchange a part of this equity for cash. A lot of people use this cash loan to make home repairs, upgrades, pay for college tuition and other expenses. It’s really up to you.

However you decide to use your home equity money, you can usually deduct the interest. That’s a pretty appealing reason to finally buy those big-ticket items you’ve been wanting. Home equity loans are also a good option if you face high medical bills or some other emergency.

A home equity loan has the same expenses as your home purchase loan - an application fee, title search, appraisal, attorneys’ fees and points (a percentage of the amount you borrow). Home equity lines of credit (HELOCs), on the other hand, may not even have fees at all.

One of the best reasons to get a home equity loan right now is that home equity interest rates for home equity loans are lower than they've been since 2008. Many homeowners are taking advantage of these interest rates now while they're so low. We can help you find the lender you need to get the best rate possible.

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Top 5 Reasons for a Home Equity Loan
  •   Take advantage of low interest rates.
  •   Make home improvements that add value to your home
  •   Get cash for a large purchase
  •   Pay for college
  •   Consolidate debt

Glossary Terms

Home Equity
Home equity is the difference between the market value of a home and any outstanding mortgage balance. A person who has a $50,000 mortgage on a... <a href='/glossary/what-is-home-equity' title='See the full definition of Home Equity'>read more</a>
Cash-Out Refinancing
Refinancing transaction in which the money the borrower receives from the new loan exceeds the total amount he uses to repay the existing first... <a href='/glossary/what-is-cash-out-refinancing' title='See the full definition of Cash-Out Refinancing '>read more</a>
HELOC
HELOC is the difference between the market value of a home and any outstanding mortgage balance. A person who has a $50,000 mortgage on a $150,000... <a href='/glossary/what-is-heloc' title='See the full definition of HELOC'>read more</a>
Mortgage Insurance
Mortgage insurance is money paid to insure the mortgage when the down payment is typically less than 20 percent. <a href='/glossary/what-is-mortgage-insurance' title='See the full definition of Mortgage Insurance'>read more</a>
Debt Consolidation
Debt consolidation means replacing several debts or loans by transferring the balances to a single loan or line of credit, usually at a better... <a href='/glossary/what-is-debt-consolidation' title='See the full definition of Debt Consolidation'>read more</a>
Debt Consolidation Loan
A new loan, usually a home equity loan, taken out to pay off the balances of several debt accounts, leaving you with a single monthly payment, instead... <a href='/glossary/what-is-debt-consolidation-loan' title='See the full definition of Debt Consolidation Loan'>read more</a>
HARP Refinance
The Home Affordable Refinance Program (HARP) was created by the federal government in April of 2009. The purpose of the program was to make it... <a href='/glossary/what-is-harp-refinance' title='See the full definition of HARP Refinance'>read more</a>

How to get a home equity loan

In order to qualify for a home equity loan, you’ll want to ask yourself these questions:

  • Is my credit good enough?
  • Can I apply with a co-applicant?
  • Do I live for most of the year in the home I want to get a home equity loan?
  • Is my loan-to-value ratio less than 80%?
  • Is my debt-to-income ratio less than 43%?
  • Can I really afford an extra monthly payment?

Home equity loan alternatives

Home equity loans versus HELOC?

There is a specific difference between a home equity loan and a home equity line of credit (HELOC).

A home equity loan is a one-time, lump-sum loan, usually with a fixed interest rate.

A HELOC is a line of revolving credit with an adjustable interest rate. A HELOC functions kind of like a credit card and can be used and reused for many years. The borrower can choose when and how often to borrow against the equity in the property while the lender sets an initial limit to the credit line.

The pros and cons of various home equity loans:

  • Home Equity Loans
  • HELOC
  • Cash out Refinancing

Pros of Home Equity Loans

  • Great for homeowners who prefer the security of fixed-rate loans

  • Great if you need money for a one-time event.

  • Ideal if you want to keep your existing mortgage

  • Receive the cash in a lump sum.

  • Interest is usually tax deductible up to a certain amount.

Cons of Home Equity Loans

  • You must repay interest and principal each month.

  • You cannot draw additional money from the loan.

  • Some lenders can charge high upfront closing costs and continuing costs.

  • Interest rates are generally higher than HELOCs of the same amount because you have the security of a fixed rate

Pros of HELOC

  • Offers flexibility and access to a reserve of cash over a period of time.

  • You can withdraw cash as needed, up to your credit limit.

  • You don’t have pay any interest until you actually withdraw it.

  • Interest is usually tax deductible up to a certain amount.

Cons of HELOC

  • Loans are adjustable so your monthly payments will change with the market.

  • You may be allowed to pay interest only for an initial period which can lower your monthly payments, but this is only for a temporary period.

Pros of Cash out Refi

  • Great option if you’ve built a lot of equity and want to refinance your entire mortgage.

  • Allows you to take advantage of lower rates or switch from an ARM to the security of a fixed-rate loan.

  • If you plan to refinance and also want cash, this takes care of both needs at once.

  • Interest on the new mortgage is usually tax deductible.

Cons of Cash out Refi

  • Your monthly payments may increase if you are borrowing more.

Take out a home improvement loan?

You probably already know that if you make home improvements in your home, you can significantly increase the value of your property value. Whether you are looking to stay in your home for a long time or you’re looking to eventually sell, there are some key places to focus when it comes to home improvement.

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The top ten ways to increase your home’s value

  • 1Make a great first impression with a beautiful front door. Whether it’s a freshly painted red with a brass handle, a beautiful glass-paned door with custom millwork or just a simple, well-maintained door, these details matter.
  • 2Stay on top of all maintenance and repairs
  • 3Open the space by eliminating unnecessary or dated walls
  • 4Upgrade your kitchen with new appliances, finishes, surfaces and paint
  • 5A little paint goes a long way – update rooms with modern, fresh colors
  • 6Pay attention to lighting - add skylights, sun tubes, dimmer switches - anything that helps create a customizable mood
  • 7Upgrade old heating or air conditioning systems with efficient, green alternatives that are not only environmentally sustainable but also offer big savings - from 30-40%; solar powered water heaters can offer savings up to 80%
  • 8Add immediate curb appeal with thoughtful and well maintained landscaping that enhances the home and creates a welcoming look
  • 9Upgrade your bathroom and replace all dated and tired looking fixtures, cabinets and tiles
  • 10Have a den or an office that you don’t really use? Turn it into a bedroom. Just add a closet and now, instead of a 3 bedroom house, you suddenly have a 4 bedroom house.

All about second mortgage lenders

Getting a second mortgage is pretty much the same as getting a first mortgage. It’s the same financial paperwork and personal information that you completed for the original mortgage. You’ll need a new home appraisal and your second mortgage lender must have all the necessary information to determine if they will be able to finance the loan.

We have great reviews of second mortgage lenders that make it easy for you to find the lender that’s right for you. Browse their customer reviews, see their specialties, and connect with them right from here.

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Frequently Asked Questions

Should I choose a fixed rate or variable interest rate?
That determination depends on several factors – time frame, risk tolerance and the terms of the loan. Fixed rates are higher than variable or adjustable rates because they are riskier for the lender. In general, the shorter your time frame, the more attractive a variable rate is. 
How can I reduce the amount of my monthly term loan payments?
Loan payments depend on two things – the length of their term and their interest rate. Obviously, then, to get the lowest payment, you’ll want to shop for the lowest rate. Choosing a loan with a longer term also reduces your monthly payment, although extending your repayment does increase the amount you pay over the loan’s entire term. 
What will my closing costs be?
Because business loans range from small lines of credit to multimillion dollar acquisition financing, closing costs are unique. Borrowers should obtain and compare offers from several competing loan sources and choose the most advantageous one. 
Once I am approved for financing, how do I access my funds?
Business loan proceeds can be delivered in several ways – a check to be deposited, a wire transfer to your bank account, a checkbook you can use for your line of credit, a credit card you can use to draw funds, or other online transfer methods such as PayPal. 
What are “soft costs?”
This term is used mainly in the construction industry and refers to expenses not related to labor and materials. Soft costs might include legal services, financing charges and accounting. Soft costs in a business startup refer to charges not directly associated with doing business – hard costs might include inventory and commissions while soft costs include office expenses.
How long does the process usually take?
The process can be as quick as 24-48 hours with the majority of loans processing in less than a week.
What are the loan terms?
There are a variety of terms offered by our lenders. Some are as short as six months while others are up to five years. Some of our lenders offer lines of credit in which there isn’t a fixed term payback.
Are there any risks associated with applying for a business loan?
There is no risk or cost to apply and our network of lenders service a wide variety of business loan needs. They tend to focus more on the health of your business and its robust performance than your own personal credit score. This can be a big bonus for some people. 
What types of business financing do lenders provide?
There are four main types of business loans. Long-term loans are often used to expand a business, acquire a business, refinance a business or provide working capital. Short-term loans don’t have monthly payments – they are due in full at the end of their terms. They’re used to purchase inventory, pay bills or complete quick projects. They work especially well for seasonal businesses. Lines of credit allow small businesses to access funds easily on the fly, much like using a credit card. Alternative financing options include cash advances, leasebacks, peer-to-peer loans, asset-based loans and crowdfunding resources. These can be used for anything, but amounts are typically much smaller than bank loans and rates are often higher.