Home loan spotlight: home equity loans

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May 9, 2011

What it is: A home equity loan is a home loan that allows you to use established equity to borrow money. Many people use this type of loan to renovate, invest in the share market or buy an investment property. Home equity loans allow you to borrow funds based on the market value of your home against the amount you owe. The idea is that you are able to redraw your own money out of your equity to use how you choose.

Benefits: Home equity loans are advantageous for tax purposes as interest on the loan may be tax deductible. Home equity loans usually offer interest rates lower than those on other finance options such as personal loans and credit cards.

Features: They provide a flexible line of credit on your existing mortgage, which allows you to kick-start your plans quickly, rather than having to save money over a long period of time. The home equity loan can be paid as a lump sum or in instalments.

Things to watch for: The amount you can borrow may depend on how much you earn, the value of your assets and any other debts you are currently paying off. Many home equity loans require a good credit history. Use a home equity loan calculator to help you determine how much equity you have and how much you may be able to borrow.


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