A home equity loan is a loan that uses your home as collateral. Your home equity is the part of your home that you actually own and this is the guarantee for your loan. This is calculated by taking the current value of your home and subtracting your mortgage. For example, if your home is worth $100,000 and you have a $80,000 mortgage, you have $20,000 of equity in your home. A home equity loan allows you to borrow money using your equity of $20,000 as security for the loan. A home equity loan, also called a second mortgage, reduces your equity in your home. Since you use your home as collateral if you default on the payments you can lose your home. This is the biggest drawback of the loan.

Home equity loans have become very popular with interest rates as low as they have been. Seems like just about

every financial institution is offering one these days. In addition to paying interest on your home equity loan there are also some fees associated with it. The fees on a home equity loans are similar to the fees associated with your first mortgage.

There are some advantages and disadvantages of getting a home equity loan that should be looked at. Some advantages are the interest rate that you will pay on a home equity loan is quite a bit less than with credit cards or personal loans. The reason home equity loans can have such low rates are because your home is used as collateral. This poses less risk for the lender which is then passed on to you in the way of a lower interest rate. Another big advantage is that the interest that you pay on your home equity loan may be tax deductible. The biggest disadvantage of a home equity loan is that if you default on your payments, the lender can take your home. Be sure to do some research before transferring your unsecured debt to a secured home equity loan.

Something else that you should watch out for while looking or applying for a home equity loan is to make sure you get a fixed interest rate. This is probably the single most important thing while looking for a home equity loan. A lot of lenders want to give you a home equity loan that has a low variable rate. With there being talks of more interest rate hike I would not recommend getting a variable rate, even if the fixed rate home equity loan has a little higher interest rate, especially if you are going to have the home equity loan for an extended amount of time. Don't be suckered in by those low variable teaser rates.

Being educated and staying informed of interest rates is key to getting the best rate when applying for a home equity loan. Make sure that you shop around with other lenders when considering a home equity loan then challenge your lender to beat the best deal that you have found. By doing this your lender may be able to offer you the same or even better rate and when you are a returning customer sometimes some of the processing fees can be waived.