What is a home equity loan and how does it work? A beginner’s guide

Every mortgage payment chips away at what you owe and builds home equity, the value in your home that belongs to you free and clear of the mortgage. Many homeowners don’t think much about it until they need cash for something big, like an emergency home repair.

That’s where a home equity loan comes in. Used well, it can cover a need without derailing your finances. Used carelessly, though, it can put your home at risk. Here’s what to know before you tap into what you’ve built.

“A home equity loan is a second mortgage that allows homeowners to borrow money against the value they’ve built up in their home without changing their existing first mortgage,” explains Debbie Calixto, an Indian Wells, California-based sales manager at mortgage lender loanDepot.

“When you apply for a home equity loan, you’re putting your home up as collateral against the borrowed amount,” adds Ernie Wingard, RFC®, a North Richland Hills, Texas-based advisor at independent financial services firm Capital Choice Financial Group.

Homeowners may turn to home equity loans for “a major medical bill, a piece of equipment that breaks down at an established business or updating a home to prepare it for sale,” says…

Original source: https://www.usatoday.com/money/