If you own your home, it is in your best interest to learn about home equity loans and the value they have for you. Home equity loans allow you to draw on the equity that you have in your home based on its value compared to your outstanding mortgage balance if you have one. However, many people fail to understand how these loans work, so the more you learn the easier the process is. Here are some of the things that you need to know about home equity loans.

You Have To Know How Much Equity You Have

Before you can get a home equity loan, you have to have your home appraised. This is required for any home equity lender to process your application and must be completed at your expense. Your appraisal will tell you the market value of your home so that you can determine the equity percentage that you have. This is a key part of your application process because your lender uses the information to determine how much you can borrow.

You Have To Choose the Type of Home Equity Loan

Once you confirm the amount of equity you have in your home, your next step is to choose the type of home equity loan you want. There are two primary options to consider.

A traditional home equity loan is one in which you borrow a fixed amount of money, much like a standard mortgage. You'll receive that fixed amount and then repay that amount plus interest over the repayment period.

A home equity line of credit, or HELOC, is different. That is a line of credit with a maximum available amount that you can borrow against as needed. You make routine payments and can treat it as a revolving credit account.

You Have To Consider the Repayment Terms

Many people are surprised by the repayment terms of their home equity loans. Discuss the repayment choices with your lender. Some lenders offer lump sum repayment at the end of the loan period, while others establish a payment arrangement with installments. In addition, make sure you ask about any prepayment penalty that might apply.

A home equity loan is a great way to get access to the funds that you need for a major investment, whether it's a significant repair, remodel, or unexpected expense. Talk with a lender near you today for more information and to find the home equity loan that's right for you.

Your local home equity company most likely has a website, so be sure to check it out for more information.