Equity Home Loans

By: John Travis

In its simplest definition, an equity home loan means using your house equity as collateral in order to borrow money. Collateral means your house will act as a guarantee. In the case if you cannot pay the loan or defaulted too long on payment, the lender has the right to sell the house to get back the loan.

In most cases, an equity home loan is seen as a second mortgage. It will run along side your original mortgage and be paid in the same way. The more common reasons for taking out an equity home loan include home improvements, purchasing a second home or debt consolidation.

In fact, most lenders are now aggressively pushing their debt consolidation products. This has become a growth area in recent years, mainly due to people over spending on their credit cards. An equity home loan will allow the borrower to pay off all existing debts and loans and spread the low monthly payment across a number of years. Most banks are very happy with this situation as they are exchanging unsecured debt for secured debt. The security of course is the equity in your home.

If you're considering an equity home loan, there is one very important point that you should be aware of. The loan is secured against your property, if you fail to make repayments there is a very real chance of you losing your property.

As you see, an equity loan line of credit has greater flexibility compared to home equity loan. However in both cases, if you decide to sell the house before the loan is fully paid, you are required to pay the balance immediately.

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