How many times have you heard a homeowner in need of some really quick cash and they automatically start thinking I have a home equity loan to fall back on. But the said through is that well over a half of Americans today not fully understand or grasp the concept of a home equity loan. So we are here today to completely break down all the information you will need for home equity loans.

Home equity loans are primarily based around the value of your home and your home’s appraisal value. Remember that your home’s value and your home’s appraisal value may not always be the same. For example, if your house if appraised at $150,000, but no one in your area has sold a house that high in the past few years it might be hard to get that much for it. Or it could be the opposite your home’s value is $150,000, but everything on your street in the past two years has sold for well over $200,000. Always remember the mortgage companies, banks, etc always take the home’s value.

So now that we have how the home equity loan is based from. The simple equation is you take your home’s appraised value for this example we say $150,000 the lender will in almost all cases give you only 80% of your home’s appraised value. So 80% of $150,000 would come out to be $120,000. So if you own a house that is appraised at $150,000 and you own more than $120,000 more likely than most the lender will not qualify you for a home equity loan. Though if you have already paid the your mortgage or loan down to say $80,000 based on this example you could borrow up to $40,000 on a home equity loan.

Follow with this equation:

Home appraised value $150,000 X 80% = $120,000
Amount you still owe on the house is $80,000
So you take the home equity loan starting money is at $120,000 – what you still owe $80,000 = $40,000 the amount you could actually put on your home equity loan.

Now the risk of home equity loans are the fact that in most cases the interest rates are on the normal a few points higher than prime interest. Though since your putting up your house for risk meaning if I do not pay this off the bank or mortgage company can take my house this interest paid on a home equity loan is normally tax-deductible. Though always remember the down fall of things and the reality of it all is if you do for whatever reasons stop making payments on this will cause to lose your house.

Also on home equity loans basically everything in mortgage applies to your home equity loan such as the application fees, home appraisal, credit check, etc will all come into a closing cost for you to pay. Home equity loans most be repaid in full amount in 10 to 30 year loan.