Loans Against Your Home's Equity

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by FDIC


Borrowing money from your home's value can be low-cost but also risky. Many people take out low-cost loans based on their equity in the house. The equity refers to the difference between what is owed the mortgage lender and the current market value of the property. If you owe $100,000 on your mortgage but your home is worth $250,000, your equity is $150,000.

Home equity products can be used for many purposes, including home improvements, college tuition and car purchases. They also can be low-cost loans because the interest rate is usually lower than for credit cards, and the interest paid is often tax deductible (check with your tax advisor). But -- and this is important -- the big risk with home equity products, as with a mortgage loan, is that you can lose your home if you can't make your payments. "Home equity products can be fine for many people but, because you would be putting your home on the line, these loans are not to be taken lightly," stressed Janet Kincaid, FDIC Senior Consumer Affairs Officer.

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