If you own a home, your options for tapping into your equity are numerous. Some homeowners choose to refinance their home and cash-out at closing. This may serve a two-fold purpose. You are able to lower your interest rate, while acquiring a lump sum of money. Those who want access to emergency cash may opt for an equity line of credit. However, if you are not interested in refinancing, but need extra cash, a home equity loan may be the perfect choice.

What is a Home Equity Loan?

A home equity loan is very similar to personal bank loans. However, unlike personal bank loans which are difficult to qualify for, you may get an equity loan with good or bad credit. Lenders are more eager to approve a home equity loan because the funds are secured by the property. Thus, if you have a low credit score, you may obtain a loan. Of course, a low credit score may result in a higher mortgage rate.

When to Get a Fixed Rate Home Equity Loan?

Before applying for a home equity loan, carefully consider the advantages and disadvantages. A home equity loan is a second mortgage. Instead of paying one monthly mortgage, you are now responsible for two mortgage payments. The second mortgage is generally cheaper, thus easier to payoff.

Home equity loans are ideal for consolidating or eliminating high interest credit card debts. This way, you are able to pay off your consumer debt at a low fixed rate, and within a specified time frame. Home equity loans are also useful when you have a large expense.

When to Avoid Home Equity Loans?

While home equity loans are very tempting, avoid applying for a loan if you cannot afford another bill. In some cases, a second mortgage may improve your finances. By consolidating credit card debt, you may save money each month. However, if you are having a difficult time paying creditors on time, do not get a home equity loan. More than likely, you will also struggle to pay back the second mortgage. Thus, you are placing yourself at risk for losing your home.