Equity Loans

Equity loans are loans you can take out against a piece of collateral based on how much the equity for that property or object you have built up. Equity is the difference between how much you owe on a property and how much you own of that property. For example, a home worth $220,000 with only $100,000 left on the mortgage gives you equity of $120,000. This also means that you could have an equity loan against your home of up to $120,000. However, most banks will only give a percentage of this equity, often up to $100,000 rather than the whole amount. However, getting a 100% equity loan is not unheard of; it all depends on the financial institution in question.

Tax deductable and with Lower Interest

Equity loans are also known as second mortgages because you are reversing your effects on your mortgage (since you’ll have to pay back the loan as well as the remaining mortgage). They became popular in the 1990s as a way to help circumvent taxes – the equity loan’s interest is tax deductable. Equity loans are also lower interest than credit cards or other loans, making them very attractive to consumers. Equity loans are most often taken out against a home; however, equity loans can also be taken out against things like vehicles, if the car has enough money on it.

Up to Thirty Years Payment Period

Equity loans can most easily be taken out through your financial institution; whichever one handled your home mortgage. You then set out how long you want the payment period to be, often up to thirty years, and get a fixed interest rate on your loan. Equity loans are very advantageous to those looking for some money because the interest rate is lower than on a credit card or a line of credit and you can have a fixed interest rate, fixed payment schedule and the ability to get a lot of money all at once for something big. They are also tax deductible, meaning that you won’t have to pay later for taking out the loan. You can also make additional payments with some banks without any penalties.

Second Mortage Instead of Selling

Equity loans are extremely helpful to people, especially in these difficult economic times where people cannot sell their homes for needed cash, so they take out a second mortgage instead and get their money that way without stressing out about a sale. Equity loans are also easy to get through your financial institution. Equity loans are also easier to get than other loans because lenders tend to be more lax about credit ratings with an equity loan; after all, you’re hardly going to run off and leave your home behind (and even if you do, the lender will get the home which will be worth more than the loan anyway.)

So, if you need a large sum of money all at once or you need money despite a less than stellar credit rating, using the equity in your home may be the best way to go.

You should always consult with your financial institution to make sure this is the right way for you to go in your monetary needs!

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