Real Estate Loans 101: Home Equity Loans

If there's one thing every adult knows, it's this: life is expensive. But that doesn't mean that going to college, starting a business, or renovating a home is out of reach without a padded savings account. For many people who own a home, a home equity loan can be a viable solution to cover some of life's major expenses.

What Is a Home Equity Loan?

Often referred to as a second mortgage, a home equity loan offers homeowners a way to borrow against the value of their home in order to remodel, pay for repairs, consolidate bills, or cover other major expenses. To qualify for a home equity loan, a homeowner must have built equity into the house. Equity is the difference between the home's appraised value and the balance owed on the mortgage. For example, if a home is valued at $150,000, and the homeowner owes $50,000 on the mortgage, they have built up $100,000 in equity. The home equity loan allows the homeowner to borrow up to the amount of equity—in this case, $100,000—using the home as collateral. With this type of loan, a homeowner receives a large lump sum of cash upfront and repays it over time through fixed monthly payments.

Isn't That a Home Equity Line of Credit?

Home equity loans and lines of credit (HELOC) are both types of real estate loans, but they aren't the same. While a home equity loan offers a lump sum of cash, a HELOC can be thought of more like a credit card. Instead of a lump sum, it comes with an approved maximum amount the homeowner can borrow against at any time.

Benefits of a Home Equity Loan

The biggest benefit of a home equity loan is that it provides homeowners with one lump sum of cash to cover major expenses, as long as they've built equity into the home. They come with fixed rates, which means payments are predictable from month-to-month. Interest is tax-deductible if the cash was used for home renovations. And good news for homeowners without stellar credit: it's often easier to qualify for these loans than other types of consumer loans since the home itself serves as collateral, according to Discover.

Apply for a Home Equity Loan Today

Whether your kitchen looks outdated or you need a new roof, borrowing against your home's value can be a smart financial decision for many homeowners. Liberty National Bank is a community bank offering home equity loans at a low fixed rate to help local homeowners cover nearly any major expense. Our loan specialists will attempt to help you secure a loan based on your unique circumstances. Call Liberty National Bank at 419-634-5015 and apply for a loan today.