Home Equity Loan

Equity Loan allows people to borrow money by pledging their house as a guarantee. The loan money is free of tax because it is not an income. The person pledging their property can receive the loan in a single payment, or is offered a check book to borrow money against the pledged property. The interest to be paid on an equity loan is much lesser than other loans because the person before receiving equity loan has pledged his/her house.

What Is Home Equity Loan?

An equity loan allows a borrower to borrow money by involving collateral. The money borrowed can be paid off when the property is sold or whenever the borrower can afford to pay it back.  There is no stern schedule to follow when it comes to paying back the loan. Some banks also lend money against an equity loan to facilitate the borrower.

Payment Schedule:

There is no specific time slot mentioned at the time of lending the loan, as to when the person has to pay back the equity loan.

The amount can be paid off whenever the borrower has money, or once the house is sold.

Interest Rates:

The interest rate charged on an equity loan is considerably low than other loans e.g. credit card debt; because equity loan includes collateral and the other one does not.

Benefits Of Home Equity Loans:

Equity loans are easy to get as the property that is pledges can easily cover the amount of the loan being borrowed. These loans have lower interest rates, and they can be used to get whatever the loan borrower desires. The amount received on such a loan is tax deductible because it does not qualify as an income.

Another favorable point about equity loans is that a person can be eligible for the loan even if they have a poor credit score, unlike other financing loans where the person with a good credit score is considered more likely to be given the loan. A person applying for an equity loan can get fairly higher amount of money as a loan.

The most common usage of such a loan is paying for school tuition, college, and funds or paying for a holiday.  In the past borrowing an equity loan was considered to be the best available option to pay for children’s education because of the interest rates being so high, but not anymore, now loans for educational purposes are a better option to pay for a child’s tuition.

Back Draws Of Home Equity Loans:

Equity loans have some disadvantages as well, if a person has invested the money in a child’s college or school tuition, and they fail to pay it according to the time slot planned, the child’s future will be in jeopardy along with your home. Another factor to really think about is that now there are a lot of scams going around, where the lenders trick the borrower into pledging their house and offer very attractive deals, and when the borrowers fails to pay up, they end up losing their home.

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