What Are Home Equity Loans?

Equity home loans are loans that you take out and your house is used as collateral for the loan. These loans are often used to finance various things such as cars, a college education or medical bills. A lot of times people who are in debt due to unexpected (or expected) circumstances use these loans to help them pay off their bills. You may be thinking, how is taking out another loan going to help me get out of debt? Home equity loans have very low interest rates which keep the monthly payments down; this helps you spread out your money to cover other areas of your debt. There are two types of home equity loans, closed ended and open ended. With a closed ended home equity loan you receive a lump sum of money upfront upon the time of the closing. After receiving that sum you can not borrow anymore. Closed ended equity loans are amortized and last usually around 15 years. You are usually allowed to borrow up to 100% of the value of your home and in rare cases you can borrow more. With an open ended home equity loan you are receiving a line of credit. The value of your house, the loan, basically becomes a credit line. The line of credit can last to up to 30 years and has various interest rates. This can be a better option to those that do not need the whole value of their home to help pay off their bills right away. They can use their house as collateral for establishing a line of credit and borrowing off of it.