Buying a home is a tremendous investment. You will be able to receive tax breaks, and if home values continue to appreciate, you will likely make a profit if you re-sell your home down the road.

But you don’t need to sell your home in order to take advantage of its value. In fact, there are several options, including re-financing, home equity loans, home equity credit lines, debt consolidation and reverse mortgages.

Below is a brief description of these loans:

• Home Equity Loan: Many people take out these types of loans to make renovations on their home, consolidate debts, pay off medical bills, or even to help send children to college. Whatever the purpose, these loans work in much the same way. They borrow against the equity in your home (the difference between your home’s current value and the money you owe on it).

You will receive the loan amount in one lump sum, and will pay the balance, interest and other fees over a specified time.

• Home Equity Line: This works in much the same way as a home equity loan, However, rather than receive a lump sum payment, you are issued blank checks which you write as needed (up to a pre-approved amount.) Your loan balance is for only the amount of the checks you’ve written, plus interest and fees. This may be preferable to a lump sum payment if you don’t know the exact amount you will need to borrow, or if you will be completing a project where you will be making payments over time.

The advantage to these loans is the interest rate is generally much lower than other lines of credit such as credit cards, and the interest paid is usually tax deductible.

Remember a Home Equity Loan or a Home Equity Line is not a source of “free money” Like any other type of loan, it must be repaid. Failure to repay these loans could result in foreclosure of your home. However, if used wisely, these home equity loans can be a tremendous way to tap into your home’s value.

By David Plowman

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