Home Equity Loans - An Alternative Secured Loan

By Sutapa Sarkar

Home equity loans are an alternative method of getting money for shielding against medical expenses, education expenses, any other major expenses, etc. In this the house of the borrower is kept as collateral security, against which the loan is given. Home is the equity in such loans, against which the borrower can get loan. They are known as an alternative or secondary source of cheap secured loans. This is because there is a standard fixed property, the value of which is ascertained and based on which the loan is given.

When To Use:

A home equity loan can be put to use for a number of purposes like fulfilling long term or short term big expenses. This loan can effectively come in use for paying off the college education expenses of children, to buy some valuable real estate, to make some major renovations or repairs in the house, or to just simply pay off the mounting credit card debt. One can also make use of such loans to help with the refinancing of the house.

Things To Be Aware:

When dealing with secured unsecured loan one must always be aware of the pros and cons of the same. There are many disclosure policies to be followed and this is true for most financial institutions. Homes are the biggest assets for most, so making sure that nothing goes wrong before taking a loan on it is vital. cheap secured loans are a big catch for many, but detouring through pitfalls is equally important to avoid defaulted loan situations.

Advantages:

• The interest rates of home equity loans are low.
• People with bad credit reports can still qualify for home equity loans.
• The payments of the home equity loans are tax deductible, a definite high for tax payers.
• The home equity loans can help in effectively small and major fund issues.

Disadvantages:

• The interest rates of the equity loans can tend to change continuously over the whole of the loan period.
• This loans are actually a source of cheap secured loans. But defaulted loan payments can lead to repossession of homes. So it's risky if one only has a single home and used it as collateral security in home equity loans and then defaulted in payments.

Tax Benefits:

This type of loans are favoured by a majority of people for a lot of reasons but the major reason for the same is that it is tax deductible. The interest paid on this loans is tax deductible, which means that a person gets deduction of such interest in the ultimate tax payments.

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