Home equity basically the value of your home minus what you owe on your mortgage.  Home equity loans allow you to borrow that money and your home’s equity is the collateral.  If used properly, home equity loans will actually help you build your home’s equity.  They are great if you plan on using the money to reinvest them back into your home.  By reinvesting the money back into your home, you in turn raise your home’s value. 

Home equity loans are basically second mortgages on your home and allow you to turn your equity into cash.  Home equity loans are generally paid back in a shorter time frame than your home’s first mortgage. Most first home mortgages are paid back within 30 years while a home equity loan may be paid back in 15 years. 
 
The cash received from home equity loans are great for purchases that are going to have to be paid back over a longer period of time anyways.  They are great for home improvements that are rather large like additions to your home, remodeling a kitchen or bathroom.  These are typically expensive renovations and the use of a home equity loan allows you to pay them off over a longer period of time than a regular bank loan.  Other uses of home equity loans are for college educations for your children.  You can withdraw the amount of money that you plan on the education costing and pay for the education over time.  At the same time you will be able to pay off the loan in a longer amount of time. 
 
During the repayment period of the loan you are not allowed to add any new debt to the loan, which makes it great for projects and education.  The interest rate is fixed from the time you borrow and you cannot borrow any more from the loan.  You have to decide how much you need or are going to spend and stick with it. You will also be able to enjoy fixed payments over the life of the loan.
 
Home equity loans are great if used responsibly and on large projects that you know you will need a lump sum for.   You may be able to increase your home’s value or your children’s education opportunities.
 

With the downturn in housing markets, people may wonder if they wouldn’t be better off going back to renting instead of buying a house.  Allow me to say, renting is never the prudent financial choice to make if you can help it.

Sure, you can rent an apartment for less than a house payment in most areas of the country.  But your money is going into someone else’s pockets who is getting the income, the tax breaks, and the slow building of a nest egg though equity.

For your $1000 rent a month, you could be making a mortgage payment with a guaranteed return on your money over time.  You could be writing off the interest on your taxes, and working towards house ownership, a comfortable place to be come retirement.

Prices are dropping with the market spiraling down.  Don’t let that discourage you from a house purchase.  Take advantage of the lower prices to get a bargain payment.  After all, renting is just as good an investment for you as flushing your money like toilet paper.