Have you been thinking about borrowing a substantial amount of money against the value of your home? Before you think about applying for a home equity loan, learn the advantages and disadvantages of having a second lien on your property.

Home equity is the difference between the value of the property and how much you have put into it. If for instance your property has a mortgage worth $300,000 and you have paid the mortgage down to $125,000 this means you own $175,000 worth of the rights to the property. This figure is called your home equity. You can borrow up to 80% or $140,000 of that amount in the form of an equity loan.

One advantage is that you have an available resource for a substantial amount of cash. All of the advantages seem to lie with the lender in these types of loans. Read on to see all the disadvantages that are tied to home equity loans.

Another advantage is that the interest remains tax deductible, just like the mortgage interest. This may not mean a lot for those in very high-income brackets because the amount of the deductible is based on a percentage.

Home equity loans mean that you are giving up your rights to another party for the amount of the loan. In short you now own less of the property than you did at the start. The mortgage holder still has a $125,000 share and you have just given the new lender a share worth the amount of your loan.

It is important to know that if you go into default on either you can lose any interest you have in the home. The lender of the home equity loan as well as the original mortgage holder can initiate foreclosure. There are many other disadvantages to getting home equity loans.

Another big one is the early redemption penalty. Most home equity loans are written with this type of penalty. If you pay off the loan early this means the lender loses the interest that they would have gotten on the rest of the loan. It is their insurance policy against loss of income.

A home equity loan also puts you immediately into the category of being a homeowner with „negative equity“. This will make refinancing a harder task if you ever need to. And while you owe the home equity loan you cannot sell the property unless you can payoff the loan as par of the contract deal. This would have to include all fees and penalties.

Homeowners who desire to increase their property values most often seek home equity loans. This doesn’t meant that adding a pool or hot tub is a good enough reason since they increase the value of the home very little. Adding rooms and energy efficient improvements will make the property value go up.

Now that you can see the pros and cons in black and white you can really decide if a home equity loan is right for you. This is not something you enter into lightly for a quick fix. The possible ramifications are life shattering. Get more information on home equity loans, interest rates and how to qualify online.

Next, find out more about home equity loans in the best specialized website available on such delicate topic.