WHAT'S THE BEST LOAN FOR ME?

How do I get a home equity loan?

Why use your home equity?

Home equity loan

Get your money in one lump sum
Pay it back in fixed principal and interest payments over a fixed period of time

A home equity loan may be the right choice if:

You need a set amount of money for a specific purpose, such as an addition to your home
You need the money right away

Home equity line of credit

Receive an established credit limit with a variable interest rate that you can access with checks and sometimes a credit card
A set period of time, known as the draw period, during which you can draw on your line of credit
May include the option to renew your credit line when the draw period expires

A home equity line of credit may be the right choice if:

You want to have money available for different reasons over a long period of time
You want to draw on part of it for a vacation this year and you want some available to remodel your kitchen or buy a car next year

The equity you've built up in your home can work to your advantage if you'd like to borrow cash for major purchases. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please. Home equity is the difference between your home's appraised value and the balance of all of your mortgage loans.
In general, interest rates for home equity loans and lines of credit are usually lower than what you'd expect to pay on a credit card - because your home serves as collateral, the lender's risk is lower. Some benefits:

Offers tax advantages. In many instances, the interest paid on a home equity loan or line of credit may be tax deductible.
Provides a new source of capital. A home equity loan is a way to finance college educations, make home improvements or buy a new car.
Helps build home equity. Investing the money in home improvements may help to build equity while borrowing against it.

Assuming that a home-equity loan is always cheaper than a car loan or a credit card. A credit card at 6.9% is cheaper than a credit line at 12% even after the tax deduction. To compare rates, compute the effective rate of your home-equity loan, with the rate on a credit card or auto loan.

Effective rate = rate x (1 - tax_bracket)
Example : If the rate of the home-equity loan is 12% (0.12) and your tax bracket is 30% (0.3), your effective rate is :
12%(0.12) x [1-0.3] = 12%(0.12) x 0.7 = 8.4%

If your credit card is higher than 8.4%, then the equity loan is cheaper, otherwise it is not. Be sure to also compare monthly payments and other terms of the loan, don't judge on the interest rate alone.

When to use your home equity

Among the most popular ways to use home equity:

Debt consolidation - Pay off one or more high-priced loans.
Home purchase - Use the equity you have in one home to buy another home.
Emergencies - Pay medical bills or deal with other emergencies.
Education - Pay for education costs.
Home improvement - Remodel a kitchen, build a swimming pool or build an addition on your house.
Auto purchase - Purchase a car and reap the possible tax benefits.