|By Ashley Russell on July 12, 2011
In this economy, many Americans do not have the extra cash lying around to have the necessary work done on their homes or upstart their businesses. If you are low on funds, but you are looking to make some updates and improvements on your house or start up your business, a home equity loan may be right for you.
A home equity loan, which can also be known as a second mortgage, is a loan that is taken out against your house. You can use your house as collateral to get the bank to give you the extra money to use as you need it. The bank will loan you a set amount, typically the amount you ask for, and you will pay it back over time. These loans generally come with fixed rates and fixed payments, so you can calculate how much your loan will cost overall.
In order to receive a home equity loan, you need to have a sufficient amount of your home mortgage paid off. Otherwise, the bank will charge you a higher interest rate.
Be cautious when you think about getting a home equity loan. Although it is access to easy cash, you will have to repay the loan plus the interest rate provided. But, if you cannot repay the loan, then the bank has the right to foreclose on your home. Home equity loans are best to use when you need a lump sum of money for something, such as starting up a business or home remodeling. However, only borrow what you know you can repay.
If you decide that a home equity loan is for you, be sure to compare the rates of several companies. Look into all of the fees they charge you, if there are any, to make sure that they are legitimate fees. As long as you have enough of your house paid off and intend to repay your loan, a home equity loan can help you start up your new business or renovate your house. Just know how much you need so that you will no borrow too much.