Do You Need Home Equity Loan?

You've heard people talk about home equity in knowing voices. And you've probably seen it mentioned in the colorful ads spilling out of your Sunday paper. But what exactly is it? It's like a riddle…something you can't see, touch, or smell.

Home equity is the value of your home that exceeds the balance on your mortgage. In plain English, if your home is worth $200,000, and you have a mortgage balance of $150,000, your home equity is valued at $50,000. If your home is worth $200,000, and you've paid off your mortgage in full, your home equity is $200,000.

When you have equity in your home, the bank will lend you money. It's an asset with a measurable value. Lenders are happy to accept it as a security deposit against your debt.

In return for lending you all that money, the bank takes an ownership stake in your home. But-and this is important-that stake is limited to the amount of money you actually owe them. When your house is worth more than what you owe, the excess value belongs to you, free and clear. That amount will vary, though, because home values and loan balances change over time. If the home's value drops, your equity goes down. If it increases, your equity accompanies it into higher levels.

Owning a house is the Greatest American Dream. Additionally, having a house to save you from monetary needs adds up to the benefits of owning the greatest American dream.

You have tightened your belt during the time you are saving for your house. Now, that you have enough equity in that property, you may loosen up a bit by making use of your equity through Home Equity Line of Credit.

Home Equity Line of Credit or HELOC, can help you in myriad of financial necessities. It can help you have a fund when you need it and for whatever purpose you may need it.

Although, you should be careful because putting your house as collateral may cause you to loose your house if you fail to pay your debt. This should make you think many times before you embark on taking money through home equity line of credit.

However, if your purpose of taking out money by means of home equity line of credit is to pay for medical bills or children’s college education, these expenses are inevitable. Thus, taking out money by means of home equity line of credit can be your best bet.

Additionally, if you want to consolidate your debt, HELOC or home equity line of credit may also be beneficial. This is because compared to credit cards and other unsecured credit facilities, the interest rate in a home equity line of credit is somewhat smaller. Another benefit of this means of taking out money is that consumer credits interests are tax deductible.

However, having said the benefits you may have from acquiring a credit through home equity line of credit, you may also need to look at the possible consequences if you fail to pay your debt.

The most important consideration is the possibility of loosing your house to pay off the debt.

It is thus recommendable that while you are considering the flexibility of a credit line, if you need a lump sum fund, you may consider taking out a Home Equity Loan instead. This is because in a home equity loan, you pay the interest and part of the principal debt regularly.

This is in contrast to the variable interest rate that applies in a home equity line of credit. Additionally, in a home equity credit line, your payments balloons at the end when you need to pay the principal amount of debt.

The flexibility of the home equity line of credit extends up to paying only the interests and paying the entire principal loan at the end of the term.

This makes it quite hard, and if you are not ready for such balloon payment, the risk of loosing your house is intrinsic in this case.

This is the reason why financial experts recommend that before you sign any contract that puts your house as collateral, you may need to consider these :

• Will you need the money lump sum? Ask about Home Equity Loan. 
• Do you need fund periodically? Ask about Home Equity Line of Credit. 
• Fixed-rate home equity loans are more suitable for a one-time, fixed expense. 
• HELOCs are better for recurring cash needs. 
• Home equity loans often have higher monthly payment requirements, and fit better with borrowers who have steady cash flow. 
• HELOCS have lower monthly payment requirements, and fit well with borrowers whose incomes vary from month to month. The trade-off for lower monthly payments is a more uncertain repayment schedule. 

Consider also asking for payments terms, interest rates and what conditions will make the lender consider you in default. These questions once answered may help you realize if putting your house as collateral is the best solution to your monetary needs.

There are other credit facilities, for this reason, you may need to do your research first before deciding. Various debt management websites can help you understand the eccentricities of financial management that will help you avoid loosing your most precious asset. The best part of home equity loans is that of revolving credit, once the amount of loan that the lender will lend to the borrower has been fixed by the lender, calculating on the value of the home against which loan is sanctioned, the borrower needs not to borrow the entire amount at the same time but can actually draw according to his needs, and pay the interest only on the amount that he has drawn till that time and not the entire amount of loan that has been sanctioned. The lenders to attract more and more borrowers also give the borrowers many schemes, which make the repayment of the loan all the more easy. The fact that borrower needs not give any other collateral, or pay any extra interest makes the entire thing even more easy for the borrower.