As a homeowner, you may be able to borrow against the equity in your home. The equity is the difference between the propertys market value and the outstanding loan balance. These types of loans have become increasingly popular because they can be used for almost anything. Common uses include debt consolidation (paying off high-interest credit card debt), home improvements, purchasing or refinancing a home, and paying for education expenses like college tuition.

The primary advantages of a home equity loan are a lower interest rate and potential tax deductions. The interest rate you will pay on a home equity loan is generally lower than the interest rate you will pay on the average credit card or any other type of non-secured debt. Also, you can generally deduct the interest you pay. The interest you pay on credit cards and other types of personal loans is typically not tax-deductible.

Home equity loans usually come in two forms: a second mortgage and a home equity line of credit. Here are better definitions of the two:

A Second Mortgage, like a first mortgage, is a loan that uses your house as a guarantee that you will make your payments. The loan is a form of credit for which your home is pledged as collateral. Generally, home equity loans offer a fixed interest rate and a fixed monthly payment. A standard home equity loan is paid off over an extended period of time.

A Home Equity Line of Credit also known as a HELOC, is a type of revolving credit for which your home is pledged as collateral. The interest rate and payments are variable. A home equity line of credit works similarly to a credit card. The payment each month is based upon the outstanding balance owed. As payments are applied to principal, your available credit increases accordingly.

If you are considering taking out a home equity loan, shop around. The home equity industry is highly competitive. Look for the best rates and repayment plans that are available.