• Deciding to take out a home equity loan

    • Choosing to Tap Your Home's Equity

      Your home's equity (the amount it is worth, minus the amount you owe on your mortgage) can provide a significant source of money. Some common reasons for accessing home equity include making home renovations or repairs, consolidating credit card debt and paying for expenses such as a child's education or wedding.

      You can choose between home equity loans, which allow you to take out a set amount of money for a set period of time and home equity lines of credit (HELOCs), which will approve you for a maximum amount and enable you to use as much or as little as you need.

      Before you take advantage of your home's equity, consider the following:
      • Your overall financial picture
      • What you intend to use the money for
      • If you're going to choose a loan or a HELOC
    • Check Your Finances

      Make sure you are comfortable with the regular payments for a home equity loan or the maximum interest rate for a HELOC. Consider your financial discipline. If you've incurred a lot of credit card debt over the years and are looking at a home equity loan to pay off your credit cards, you need to be realistic about your ability to avoid credit card debt in the future.

    • What's Your Need?

      Some uses of home equity are better than others. Renovations can be an excellent use, because you're putting the money back into your home and increasing its value. Other uses, such as for an investment or to supplement retirement may or may not be your best option. Be sure to talk to a financial advisor about your specific situation before making any decisions.

    • Compare Products

      Your lender may offer a variety of terms and rates within these two types of products. You'll want to discuss any related fees and timing with your lender as well. Here's an overview of the differences between equity loans and HELOCs.

      Home Equity Loan

      Fixed Interest Rate
      Use the Whole Amount
      Good for Single Event Expenses

      Home Equity Line of Credit

      Adjustable Interest Rate
      Use Only What You Need
      Good for Recurring Expenses