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Home equity is the balance of the appraisal amount
of home minus the amount owed to the lender. Home equity is the part of
the home the consumer owns outright. Most homes appreciate or increase
in value over time. Your home is most likely worth more when you sell
it then when you purchased it. This is known as building home equity.
You may take a loan out using the home equity as collateral. This is
termed a "home equity loan". In most instances, the interest paid on
the home equity loan is tax deductible, which makes these types of
loans more attractive. The interest rates on these loans are also much
lower than conventional loans, so it can make a lot of financial sense
to use this money instead of borrowing at prime rates. More and more
people nowadays understand this concept. It is becoming much more
common for people to use home equity loans to make major house repairs,
pay college fees for kids and pay off high interest revolving around
credit card debt.
Most of us can and do run up credit card debt without knowing exactly
what we have spent on. Credit card companies make their money off the
interest you pay on the money you owe to the credit card. Unlike our
parents, this interest is not tax deductible and the rates can and
usually are very high. A lot of people find themselves with far more
credit card debt than they can handle. If you are in this situation,
start arranging to refinance the debt into a home equity loan. Remember
that by refinancing you are not adding or subtracting money from what
you owe, but you are simply moving the debt to a lower interest rate
loan. You may have several debts and can consolidate them into a
one-home equity loan and thus one monthly payment.
Note that a home equity loan is a fixed amount borrowed over a fixed
term usually no more than five years.
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