Use #1 – Consolidate Debt

Probably the most common way to use a home equity loan is for debt consolidation. Most of the time, these loans have lower interest rates than other types of debt. For example, the average credit card interest rate is around 16%. If you are struggling to pay back all of those smaller examples of debt, you can use the funds from home equity loans to pay them all off and free up some cash. You’ll end up with a lower interest rate and a better debt to income ratio in some cases.

The biggest problem with taking this route is that if you’re the type of person who runs up a lot of debt, you may end up repeating the process once your credit cards are freed up thanks to the home equity loan. These actions could lead you down a financially disastrous road.

Use #2 – Children’s Education

If you have kids going to college, you may also consider using a home equity loan to pay for that education. College costs are increasing every year so this could be a wise choice and could help prevent your child from starting out in life with too much debt. While this is an idea worth considering, there are some drawbacks.

First, you also have to consider whether or not you’ll need to access your home’s equity during your own retirement. These two life milestones tend to go hand in hand and this might be a good time to put your own needs first, especially if your child has other funding options. Be sure that he or she explores all options, including federal grants, federal student loans, and scholarships. Another idea is for you to take out a federal PLUS loan using your home as collateral.

Use #3 – Fixing Up the Home

The second most common use for a home equity loan is repairs and improvements to the property. The basic idea is that the changes will actually improve the value of the home which means more equity. Plus, if there are major repairs needed and you can’t afford them in any other way, this is definitely a resort you can choose.

Be aware though that not all of the changes you add are going to boost the value of your home. You also need to realize that your home’s value is also closely tied to the neighborhood in which you live. If you are going to do repairs, consider focusing on the kitchens and bathrooms because these changes are the most likely to increase value.

Do you need additional good ideas on how to use the funds from a Home Equity Loan? You’ll find more ideas by visiting http://www.homemortgageloan-refinance.com/Home-Equity-Loan-Best-Deals.php.

A home equity loan or line of credit can give you access to the funds you need in the event of an emergency by allowing you to borrow against the equity in your home.

Interest rates on home equity loans and lines of credit are often lower than those for credit cards, making them a more appealing option for homeowners. An added benefit is that the interest you pay may be tax deductible. Be sure to consult your tax advisor for further information about deductible interest on loans or lines of credit.

This all sounds great, right? So, how do you determine whether you need a home equity loan or a home equity line of credit?

Once you understand the major differences between these types of loans, you’ll better understand which one will best meet your needs.

Home equity loans

Also known as a second mortgage, a home equity loan (HEL) gives you access to a single lump sum that you agree to pay back on a regular monthly basis over a time span of 10 to 30 years. With this type of loan, you can get either a fixed interest rate or the flexibility of a variable interest rate.

Often best-suited for large one-time expenses, home equity loans are beneficial when you need money for things such as short-term home improvements or a new car. It’s possible to be approved for up to 100 percent of your home’s equity, and an appraisal usually is required as part of the application process to help determine the market value of your home.

Home equity line of credits

A home equity line of credit (HELOC) functions like a credit card, by providing you with a revolving line of credit. You can borrow as much (or as little) money as you need at any given time, up to a predetermined maximum limit, rather than receiving one lump sum as you would with a home equity loan. With this type of loan, you usually receive a variable interest rate based on the fluctuations of the prime rate.

When you are approved for a home equity line of credit, you will be given checks or a credit card to use when you want to draw upon your line of credit. In most cases, your monthly payments will be on the interest only, and you will be responsible for paying back the principal at the end of your draw period. Once the principal is repaid, it becomes available for you to borrow again.

One of the major benefits of a home equity line of credit is that is flexible and like a home equity loan can also be used for anything you want; however is often best-suited for long-term, ongoing expenses such as funding long-term housing renovations, medical bills, or college tuition. Assuming creditworthiness, the amount you can be approved for is based upon a percentage of your home’s appraised value, minus what you still owe on your mortgage.

It is important to note that when you commit to a home equity loan or line of credit, you are using your home as collateral. Be sure you understand the terms of the loan or line of credit, and only commit to an amount that fits comfortably within your budget. Because you will be on a recurring payment schedule, and know exactly how much the amount of your monthly payments will be over the entire term of your loan, you should be able to budget for your payments in advance and not have to worry about the chance of foreclosure. Plan ahead, and be careful not to over-extend yourself.

If you’re looking for a way to finance that new car or college education, or need help paying for emergency expenses, you may want to consider applying for a home equity line of credit or home equity loan. Be sure to choose a company you can trust – one with a great reputation – like Nationwide Bank®. Loans from Nationwide Bank offer attractive interest rates with flexible terms to fit your individual needs.