By Daren Newman - Broadway Capital Group ©

Home equity loans are typically junior loans and should not be confused with a basic refinance, which means paying off an existing mortgage and replacing it with another loan. Refinances can take 30 days or more to process. Home equity loans fund fairly quickly and are subordinate to an existing first mortgage. In other words, an equity loan falls into second position.

Home Equity Loans

Borrowers cannot obtain equity loans in all 50 states. Equity loans can be used toward the purchase price of a new home but the lender will not make the loan if your home is on the market.

Borrowers also obtain home equity loans to pay for home improvements / remodeling, college education or medical expenses. Because interest is tax deductible on a home equity loan, many homeowners choose to borrow against a residence to buy consumer goods. They reason that if they finance consumer goods by obtaining an unsecured loan or putting the purchase on a credit card, they cannot deduct the interest, but they often do not stop to consider whether the item is really a necessity. It is not a good idea to borrow against your home to purchase luxuries such as motor homes, ski boats or vacations, but people do it. Advantages to a home equity loan are:

• Typically, fixed rate of interest
• Borrow 100% of equity or more

Home Equity Line of Credit (HELOC)

Borrowers can take out a home equity line of credit and never repay a dime. That's because a HELOC is a line of credit, meaning if you never actually take any of the money available, you won't ever need to pay it back. It's available by writing a check for more than you have in your account or by making withdrawals against a specific account at your lending institution.

Some of the characteristics inherent with a HELOC are:

• Generally, an adjustable-rate loan
• Once the money has been repaid, you can borrow it again
• Flexible payment terms, sometimes as low as 1% of your loan balance

Note: The time to apply for a HELOC is when you don't need it. It's credit that will be available to you should you ever need to draw on it, whether you are subsequently unemployed or facing an immediate financial emergency.