A home equity loan is a loan in which a borrower uses the equity, or value of their home, as collateral. Home equity loans are special loans that are secured against the value of your property, similar to a traditional mortgage. Typically, home equity loans require good credit and are often shorter term than first mortgages.

Home equity loans are often used by people who need to better their financial position. This often includes financing major home repairs, paying college tuitions or keeping up with medical bills. Essentially, you are borrowing against your home; thus if you fail to repay the loan, your house is forfeit. There are two types of home equity loans, closed end and open end.

The closed-end home equity loan
In a closed-end home equity loan, the borrower is given a lump sum at the time the deal is closed. They cannot borrow any more, and the amount they are allowed to borrow depends on their credit history, income, the appraised value of the home, and other factors. A closed-end home equity loan typically has a fixed interest rate and is given as a lump sum, which is then distributed into smaller installments (amortization) over a period of up to fifteen years or so.

The open-end home equity loan
Also called a home equity line of credit, the open-end loan is a revolving credit loan where the borrower chooses when to borrow against the equity of the home or property, and how often they want to borrow against it. The lender sets up an initial limit depending on credit history, value of the home, and other similar factors. These loans are often available in increments as long as thirty years.

There are a number of benefits associated with home equity loans. These include:

• Possible tax deduction. In the US, you may be able to use a home equity loan as a deduction on your income taxes.
• Allowing you to take care of major expected or unexpected expenses. These include medical bills, car loans, credit card debt, college tuition, and more.
• Interest-only payment options. Many home equity loans allow you to pay based on the amount of interest accrued on the loan.
• No costs for closing. Many home equity loans won't cost you anything out of your pocket up front. While there will be some smaller fees, a good lender will usually incorporate the fees into their commission.
• Extended terms of repayment. Home equity loans generally have highly flexible repayment terms.

A home equity loan is a great option if you need extra financial leeway for any reason at all. There are many options for borrowers who are interested in this type of loan, so be sure to look around and compare your possibilities. Your bank is a good place to start, or better yet, go online and look for opportunities; there are a number of high-quality loan and mortgage companies that are there to help you find what you need.
Home equity loans often have the lowest interest rates of all loan types, and actually, it's much like borrowing from yourself. Having a home equity line of credit helps you prepare for any unexpected expense.