Home Equity Loans Bad Credit

If you own a home and have equity in it, you might consider taking out a home equity loan as a source of funds for your child's private school or college tuition. Alternatively, you might decide to refinance your mortgage to one with a lower interest rate or a longer term in order to create more discretionary income each month that can be used for education purposes. Either way, home equity is an excellent source of financing, especially for larger purchases.

Home equity financing uses the equity in your home to secure a loan. It is structured as either a loan or a line of credit. With a line of credit, the lender establishes a credit limit, which depends on the equity in your home and your ability to make payments. You can then access as much money as you need (up to the limit), whenever you need it, by writing a check or using your credit card. Generally, interest rates are variable and tied to an index. Your monthly payments will also vary, depending on your outstanding balance.

With a home equity loan (often referred to as a second mortgage), you borrow a fixed amount (typically no more than 80 percent of the equity in your home), which is transferred to you in full at the time of the closing. You must then repay that amount over a fixed term. If you repay the loan, the lender discharges your mortgage. If you do not repay the loan, the lender can foreclose on your home to satisfy the debt.