One of the reasons homes and real estate in general tend to be such good investments is because they offer equity. Your home’s equity, quite simply, is the amount of money it is worth versus the amount of money you owe on it. So, imagine getting a home loan for $150,000, and 10 years later, the home is worth $200,000. You only owe $125,000 on it. That means you have $75,000 in equity. When you sell your home, that $75,000 will be yours.

Many people use the equity of their home without actually selling it. This is done through an equity home mortgage, also known as a home equity loan. You can use the cash from your home equity loan for a wide range of things, from consolidating or paying off debts to helping your kids through college to purchasing a car to making home improvements to further increase your equity–the possibilities are endless.

Equity Home Mortgage Basics
When you take out a home equity loan, in most cases you are borrowing a specific amount of money at a fixed term. That’s why this type of loan is also known as a second mortgage. This is smart because you know your interest rates will never go up, and in a fluctuating market, this is useful.

An equity line of credit is another type of home equity loan that gives you ongoing credit. However, you are subject to current interest rates at the point in time you decide to borrow the money, so payments could be higher.

It’s also important to note that if you fall behind on your home equity loan payments, your lender could end up taking your home and foreclosing to help repay your debt.

A home equity loan can be a good choice for extra money, but it’s important to understand it works.