Home improvement projects are an important part of owning a home. Over time, the work you put into your home helps it to become your ideal place to live. Home improvement costs can be intimidating, however, and most people find they need to find home improvement financing. If you’ve been in your home long enough to build up a good amount of equity, a home equity loan may be a good solution for you.

Understanding Home Equity Loans

A home equity loan is a secured loan that uses the equity of your home as collateral. The equity in your home is equal to the amount of your mortgage that you’ve already paid off. Home equity loans are a type of second mortgage. You can choose the security of a fixed rate, with payments that will remain the same for the life of the loan. Adjustable rate home equity loans are also available.

Borrowers can use home equity loans for a variety of purposes. In addition to home improvements and repairs, these funds can be used for:

• College tuition and expenses
• Debt consolidation
• Financing the purchase of a second home
• Medical expenses.

You can find a home equity calculator online to get some idea of what you qualify to borrow, and what your payments would be.

Home Equity Loan versus Home Equity Lines of Credit (HELOC)

Home equity loans are sometimes confused with home equity lines of credit. These are two very different types of home improvement financing, however. While both are secured by the equity in your home:

• A HELOC is a revolving line of credit. You borrow money as needed and make payments only on the amount you’ve withdrawn. HELOCs are well suited to multiple home projects to be completed over the course of many years.
• A home equity loan is received as a lump sum, and paid off over a number of years. It is well suited to large, one-time home projects.

Advantages of Home Equity Loans

Financing your home improvement projects with a home equity loan has many benefits. Some advantages of using home equity loans are the following:

• Interest paid on home equity loans is usually tax-deductable.
• Interest rates are often lower than other types of loans.
• You can borrow a large amount of money, based on the equity in your home.
• Your credit score does not have to be great, as the loan is secured by your home.

Some Common Home Equity Loan Concerns

If you are thinking of taking out a home equity loan, here are a few concerns to consider:

• Be absolutely sure you can afford to make your home equity loan payments on time. If you get behind on your payments, your lender could take your home from you. You may want to purchase insurance to cover your payments in case you lose your job or become disabled.
• Beware of the many home equity loan scams taking advantage of borrowers. Take time to assure that you are dealing with a legitimate and reputable lender.
• Home equity loan terms can vary widely. Taking the time to shop around for the best deal may save you thousands of dollars!