Home equity loans are great for home improvements, paying off credit card debts, and paying for a child's education. Many homeowners choose to take out a home equity loan because the process is quicker and cheaper than refinancing their home. For the most part, money is received within five days and the fees associated with the loan are minimal.

What is a Home Equity Loan?

Home equity loans are essentially second mortgages. These loans allow homeowners to borrow money using their home's equity as collateral. For example, if a home is currently worth $200,000 and the amount owed to the lender is $150,000, the home's equity is $50,000. Thus, the homeowner has the opportunity to borrow up to $50,000. A second loan is created, and the homeowner makes two monthly payments. One payment is applied toward the original mortgage and the second payment is applied to the second mortgage.

Although interest rates are low, rates for second mortgages are higher than rates for an original mortgage. In some instances, lenders consider home equity loans riskier. Before taking out a home equity loan, homeowners should consider whether they can afford an additional monthly payment.

Getting the Best Home Equity Loan

Home equity loans are often confused with refinancing. However, the two processes are very different. Refinancing a home creates a new mortgage, thus homeowners must go through a process similar to obtaining an original mortgage. The process is lengthy and expensive. Home equity loans are much easier because the home's equity serves as the collateral.

Comparing Rates

When trying to locate the best home equity loan, homeowners should compare rates and services from several different lenders. Eager applicants foolishly accept the first quote received. However, homeowners may be given better offers by shopping around. Initially, homeowners could contact their current mortgage company. If payment history is satisfactory, these lenders may be able offer a lower rate. Nonetheless, homeowners should compare rates from other lenders. Submitting an application through an online broker is beneficial because these companies negotiate with a number of lenders. Through brokers, homeowners will receive multiple offers or quotes from several lenders within 24 hours.