A home equity loan is essentially a type of second mortgage. You'll be borrowing money against the value of your home. This carries risk, but can be worth it in the end if you know what you're doing.

The most common type of home equity loan is a "closed end" home equity loan. This type of loan essentially allows you to borrow a certain amount of money against the value of your home. You cannot borrow more money on the same equity loan, so if you need more money later, you'll have to try and take out another loan.

Most people find that getting a home equity loan can go a long way toward helping them to get out of debt. Since you're borrowing money against your house, there is a greater chance that you'll end up with a lower interest rate than you're used to. This will probably result in a much lower monthly payment than most other loans.

One reason to get a home equity loan is if you are in a lot of debt and have several high interest payments to make each month. If you can get enough money in an equity loan to pay off your other debts, you'll be able to effectively consolidate all of your debt into one low monthly payment.

It is essential, however, that you make sure that you're able to meet your monthly payments after you get a home equity loan. After all, if you start missing payments, you might lose your house. Therefore, you should make a very careful assessment of your financial situation before you apply for the home equity loan. If you do not think that you'll be able to pay even the low monthly payments on this loan, then don't take the loan. If you're considering the laon for debt consolidation purposes, you might be better off looking at one of the many other debt consolidation options that are available to you.

The closed end home equity loan is not the only loan of its type. If you are looking for something that's a little more flexible, then you might want to go with a home equity line of credit instead.

A home equity line of credit works very similarly to a loan, and can definitely help you reduce your interest rates and monthly payments. The major difference, however, is that a line of credit will allow you to borrow more money against your house when needed - in some cases, up to 125% of your home's value.

While a home equity loan is better in most cases, the line of credit is a good idea if you're not sure how much money you need to borrow right away. With the line of credit, you can increase the amount of money you've borrowed against your house easily.

You will more than likely also want a home equity loan if you have a lot of credit card debt. While credit card interest rates are traditionally very high, home equity interest rates are fairly low. Since it's likely that you've ended up with several credit cards, you will probably have a lot of debt that you can easily consolidate with one home equity loan.

A home equity loan may be right for you if you need to consolidate debts quickly, and you're sure that you'll be able to pay off the home equity loan without missing any of your payments. If you are taking the loan for debt consolidation, be sure you have the discipline to use all of the loan for that exact purpose!

About the author: Peter Sachford is the owner and operator of AAA Home Equity Loan which is a popular and comprehensive resource for information on home equity loans. For more information, go to: http://www.aaahomeequityloan.com

Raiding the Piggy Bank? Here's How to Take Control of Your Finances

(ARA) – Most Americans dream of owning their homes free and clear someday, part of their retirement nest egg. Yet, for many, this dream gets farther and farther from reality as they break into their home equity piggy banks.

“I am somewhat surprised at the number of our loan applicants, even many of our excellent credit quality customers, who have taken equity out of their homes over the last few years via cash-out refinances or home equity loans,” says Gary Miller, a 25-year veteran of the credit industry and CEO and co-founder of FirstAgain LLC, a financial services company based in San Diego, Calif. “Now, with larger mortgages and often less equity, particularly with the recent home price depreciation hitting many areas of the country, these people face a longer and more difficult path to debt-free home ownership.”

Before you decide to borrow against your hard earned home equity, consider the following:

* Are you using your home equity for something that actually adds value (equity) to your home, such as a remodeling project or a swimming pool or for something important in your life such as a child’s education or unexpected medical bills?  This can be a prudent way to finance such expenditures. Home equity loan rates are attractive and the interest is usually tax deductible if you itemize.  However, if you are using your home equity to finance vacations or pay your bills, think again, as you may be overextending yourself.

* Are you using a fixed rate home equity loan with the shortest term you can easily handle?  Adjustable rates may make sense for the financially well off (and financially sophisticated) but for most people, a fixed rate and a fixed monthly payment avoid future payment shock and is the better alternative.  Paying off your loan sooner obviously builds your home equity more quickly.  Think of it as forced savings.

* Cash out refinances can make sense if you are improving your overall mortgage terms and using the cash for an appropriate purpose.  Again, consider shortening your loan term if possible.

* Are you thinking about a home equity line of credit (HELOC)?  This product is marketed like a credit card with adjustable teaser rates, ease of use and other incentives, encouraging you to use your home equity for just about anything with long repayment periods.  Be careful.  Having a HELOC in place may be prudent for certain purposes (for example, a future emergency) if you can be disciplined about not normally using it and pay it down quickly if you do.

* If you have excellent credit, you may qualify for an attractively priced unsecured loan that doesn’t require pledging the equity in your home.  This type of loan, such as FirstAgain’s AnythingLoan, offers highly competitive, fixed interest rates and an ease of use not available with mortgage products.  Entirely online and paperless, you can apply in the morning and have $10,000 to $100,000 in your account by the afternoon.  It takes just minutes versus the days required for a mortgage loan.

“Given the more difficult lending environment caused by the recent sub prime meltdown, home equity products have become both more expensive and more difficult to obtain as lenders tighten their credit criteria and loan to value guidelines,” says Miller.  “Our product represents a great alternative for those with excellent credit who don’t have a home equity loan option.”