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Home equity loans are essentially personal loans secured by your home. Home loans allow you to borrower against the equity build up in your home. Equity is the difference between the fair market value of your home and any debt (mortgages etc.) on the home. How much one can borrower with respect to home equity loans is based on total equity in the home. Home loans are an excellent method for borrowing money as the interest rate is usually one of the lowest rate available plus the interest you pay on the loan is usually tax-deductible.
Home equity loans usually have a variable interest rate rather than a fixed rate. Variable rate home loans secured usually have a cap as to how high the interest rate can rise, over the term of the loan. Consumers use equity loans to buy cars, boats etc. or to consolidate existing bills, credit card balances etc. The uses for these equity loans vary, however one has to remember that if you fail to honor the payments, you could lose your home.
A popular form of home equity loans and home loans: Home Equity Lines of Credit
Home equity lines of credit are essentially revolving home equity loans that are secured by your home. With home loan lines of credit, a maximum loan amount is determined based on the equity in the home and the credit history of the borrower. The customer can borrower up to the maximum amount, pay down the loan, then borrower again up to the maximum etc. In effect, the outstanding balance goes up and down however, the customer must not exceed the maximum amount.
The advantage of home loans is that in effect you have a pre approved loan as the funds are available when you need then, you just write the cheque. The disadvantage is that if you don't repay the loan, you as noted above , can lose your home. These loans are also very popular with individuals who want to use some of the equity in their homes now, instead of when they retire etc.
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