Home Equity Loan
Using the borrower’s residential property as collateral, a home equity loan is an open-end loan that is similar to a line of credit. It allows a homeowner to borrow money based on the amount they have invested into the ownership of his or her home. A home equity loan is also known as a type of second mortgage. Home equity loans can be considered tax-deductible when used for college tuition, medical bills, debt consolidation or home repairs, making them a better option than other lines of credit such as a credit card – if, of course, the loan can be paid off. With the house as collateral, it can be sold to pay the remaining debt if managed improperly.

Unlike other lines of credit like a standard second mortgage or a credit card, the interest rates on a home equity loan are typically adjustable, and the interest payments sometimes will be considered tax-deductible. When managed correctly, home equity loans can be a valuable resource for those that use them, and can often be a much better option than taking out a new loan. However, like any line of credit, it must be managed carefully in order to avoid more financial difficulty down the road.