Home Equity Loan

A home equity loan is a fixed-rate loan with a fixed payment schedule based on the available equity in your home. You receive your loan money all at once and then pay it back in predictable, fixed monthly payments.

Rates on home equity loans run a few percentage points higher than a home equity line of credit (HELOC), but you have the added security knowing the rate and payment will always stay the same.

Home equity loans are usually tied to the Prime Rate published in The Wall Street Journal. The prime rate is also used to set credit card rates and auto loans.

At this writing the prime rate is 3.25 percent, which is down from 5.25 percent last year. Mortgage rates and home equity loan rates have been going down this past year because the economy is in a recession. Lower home equity loan rates are good news for home owners looking to tap into their equity.

Popular uses for home equity loans include:

• Debt consolidation - Paying off higher interest credit card debt. Most credit card rates are in the double digits, whereas home equity loan rates are in the single digits as of April 8th, 2009.
• Auto loan -  Rates on home equity loans usually run lower than auto loans.
• Home remodeling - Tapping into your home equity is a good source of funds for updating or adding an addition onto your home.

Another added benefit of a home equity loan is you can take a tax deduction for some or all of the interest you pay on the loan. Before you get a home equity loan consult your tax advisor to find out what the tax deductions might be for you.