Home Equity Loans

Owning a home has plenty of benefits, from tax breaks to personal pride. One of the financial advantages for homeowners is the ability to draw money from the equity built up in their property. Home equity is like a savings account you can access through a home equity loan. Compared to other loan types, there are many advantages to taking out a home equity loan.

Tax deductions and a lower interest rate are two of the big benefits. Since a home equity loan is secured by your home, it poses less risk to a lender than does a non-secured personal loan or credit cards - this lower risk is passed on to you in the form of a lower interest rate.

As with any financial transaction, there are risks involved. Borrowing from your home's equity reduces your own level of equity (or ownership) in the property. You're essentially trading a piece of your ownership stake for cash. There are interest charges on the loan, and other costs associated with taking out a home equity loan, similar to the fees you paid when first acquiring your home. The biggest risk of all is the fact that your home is on the line, and could be lost if you fall into default.

That said, if you apply a home equity loan toward home improvements or the purchase of another home, you can deduct the interest paid on the money you borrow. This is because home improvement loans are, for tax purposes, categorized similar to first mortgages.

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