A home equity loan is by nature a secured loan. A method to release the embedded equity in the home you own. An alternative expression is that homeowners use the equity in their home as collateral. Such loans are often taken out by homeowners that wish to either; finance home renovations, pay for unexpected expenses, pay for higher education or even to refinance your credit cards or fund that ideal holiday.

Essentially this loan creates a charge, or additional charge, against the home until it is repaid. If the borrower already had an existing mortgage then the Home Equity loan will be a second mortgage ranking behind the first mortgage for security purposes, hence the need for the lender to ensure that the borrower has sufficient equity in the home to cover their loan advance

Obviously there are conditions that borrowers must meet before they become eligible for a home equity loan. These loans were historically only available for homeowners that had substantial equity in their home, as well as a good credit history, however many banks and loan companies have become more aggressive pursuing profits in recent years and some have been advancing home equity loans to borrowers with less equity and with less than perfect credit rating credentials.

There are many good reasons to refinance your debts and a home equity loan is one of the main vehicles for achieving a good outcome from this exercise. Typical uses for home equity loan refinances are to take additional debt and at the same time restructure all existing short term debts.

The remaining periods on existing short term debts such as; car loans and credit cards and personal loans etc. can cumulatively require a high monthly amount to meet their agreed instalments, whereas when combined with a new debt, in the form of a Home equity loan, at a lower interest rate and over as longer term, can make a new lower combined monthly payment. So it can be cash flow positive and reduce your total monthly outgoings.