If you are a homeowner, you can take a loan against the equity that has accrued in your house over the years by your timely monthly mortgage payments. This type of loan is called a home mortgage equity loan. Essentially what you are doing is borrowing against the accrued equity and using it as collateral for a mortgage equity loan.

A mortgage equity loan serves a valuable need if used appropriately and judiciously. For example, if you use the loan to make home improvements you may be ultimately raising the market value rate of your home and thus creating more equity in the process. Also, the mortgage equity loan has a much lower interest rate than is usual for personal loans or other high interest loans because the loan is secured by the equity in your home. This can be a double-edged sword however, in that if you default on the loan you could end up losing your home.

There are two types of home equity loans: 1) A closed-end mortgage equity loan and 2) An open-end mortgage equity loan. In a closed-end mortgage equity loan a borrower receives a lump sum of money at the time of closing and cannot borrower more funds at a later date. This type of loan is usually at a fixed rate amortized for up to 15 years, but occasionally a balloon rate can be negotiated with lower payments in the beginning and ending with a large end of term payment.

An open-end mortgage equity loan is often referred to as a “home equity line of credit” and allows a borrower to choose the time and frequency of when to borrow against the equity in the property. The lender sets the credit limit in the same manner as in a closed-end mortgage equity loan. Like the closed equity loan, an open equity loan allows up to 100% of available equity to be borrowed, less any liens. The line of credit established with this type of loan can be available for up to 30 years and the interest rate varies but it is typically the prime rate plus a certain margin.

Occasionally homeowners will take out a home equity loan for some other reason than to do major home repairs. Paying for college or unexpected medical bills or even for debt consolidation are all appropriate reasons for seeking out this type of loan. If a homeowner is strapped with high credit card and personal debt a home equity loan can save that person a large amount of money on interest payments alone when compared to the traditional loans available in these particular situations.

A home equity loan is considered a second mortgage, and as such, you are entitled to some of the same tax benefits that you receive with your primary mortgage. The interest payments on the loan are usually tax deductible as long as you file properly with the IRS and you borrow less than $100,000. Only a Certified Public Accountant can advise you of the specifics of your particular situation. Keep in mind that there many good reasons for getting a mortgage equity loan, but if you borrow too much, your outstanding credit limit may be raised to a point where you may not be able to get other lines of credit at a time when needed.