A fixed rate loan and a home equity line of credit are the two types of home equity loans available. Al one needs to do is to decide which suits their need the best and then going for it.

It was not until 1996 that home loans reached the levels that they are commanding now. Owing to the fact that they provided the consumers the opportunity to escape some of the clauses from that year’s income tax rule they became an important financial tool available for the consumers who wanted financial aid.

By availing the facilities of a home equity loan the individual can take a loan of up to $100,000 and still manage to deduct all the interest at the time of filing their tax returns. A home equity loan which is also referred to as a second mortgage facilitates the individual to borrow the needed funds by in return leveraging the equity in their homes.

These home equity loans are beneficial both to the consumer as well as to the lender. for an individual a home equity loan is the easiest way to acquire fast cash. Taking this loan is also not all that heavy on your pocket as the rate of interest though higher than that of a first mortgage is much lower in comparison to the rates associated with a loan taken on your credit card and other similar loans.

Also the provision of the interest accumulated on a home equity loan being tax free significantly adds weight to its popularity quotient. On the other hand even the lenders could not have asked for a much better deal. When providing a customer with a home equity loan the lender who as it is is earning the interest and fees from the customer’s initial mortgage and now would earn all the more by means of the additional charges and fees. Also, the fear of defaulting is away from his mind because he has your house as collateral against the loan. So even if you fail to repay the loan within the stipulated time frame he can always recoup back his losses by selling your house.

These home equity loans are basically of two types: fixed rate loans and home equity line of credit. Both of these two types have to be repaid back within the stipulated time frame which generally ranges between 5 to 17 years.

1. Fixed rate loans: a fixed rate loan is a home equity loan where a single lump sum amount is made available to you in form of the loan which you subsequently repay back in fixed installments at a pre decided rate of interest. Here, the monthly installment amount as well the interest charged on it remains unchanged over the entire tenure of the home equity loan. These home equity loans generally come associated with a closing cost and the interest paid on them is generally tax deductable.
2. Home equity line of credit: A home equity line of credit or HELOC is a variable rate loan, that is, the rate of interest applicable on the loan is not the same throughout the loan tenure and keeps on changing depending on the market sentiments. The working of a home equity line of credit is very similar to that of a credit card as it comes with a pre defined spending limit. You can borrow from this limit any amount at any point of time as against the lump sum amount that is provided to you in case of a fixed rate loan. Your monthly installments will depend on the money you have borrowed that particular month and the current rate of interest prevailing at that time in the market. A HELOC generally comes with no closing costs and with the facility of a tax deductible interest.
3. Despite the risks involved it is very easy for anyone to fall for the lure of these home equity loans. Being rationale and keeping a cool head will definitely go a long way in helping you make the correct decision of whether you actually need it or not.