What equity debt is: Introduction

By Bankrate.com

Home equity loans are an increasingly popular way to raise cash. Find out what the risks and rewards are.


Your home is your castle -- and sometimes it's also your bank. The equity in your home -- the current appraised value minus the amount owed on the house -- can be tapped through loans at lower interest rates than credit cards. This chapter defines the types of home equity debt and the pitfalls of each. We also look at the tax advantage and low interest rates that make them such a popular option for borrowing.


Which type of equity loan is right for you? It depends on the purpose for the loan and how long you need the money.


The tax deductibility and low interest rates of a home equity loan make it attractive. What do most people use the money for? We look at the common reasons people borrow against their equity and also show which type of loan -- the lump-sum equity loan or the little-at-a-time HELOC -- is best suited to the purpose. We also point out the pros and cons of these loans in a simple manner.


Applying for a home equity loan requires much of the same paperwork -- and fees -- as a first mortgage.


Applying for a home equity loan isn't as time-consuming and detailed as applying for a mortgage, but it still requires some work and fees. In this chapter, we'll tell you what you need to show the bank when you apply for a loan, and we'll detail the fees and closing costs you can expect to pay. Finally, we give you some reasons to refinance that home equity loan.

Understand risky loans before you agree to one. And watch out for these common loan scams.


This chapter deals with common but risky types of loans, such as balloon loans and high loan-to-value loans. They're perfectly legal, but dangerous if you don't know the consequences. The rest of the chapter covers loan scams and what you can do about them. Did you know the Truth in Lending Act provides a right to cancel certain real estate loans? Read about it here.