As a homeowner, if you have equity in your home, you are well positioned to get a loan, secured by your position of home ownership. Your equity position is based on how much you owe on your current mortgage, subtracted from how much your home is worth. The balance is the equity you have built up in your home (EQUITY = HOME VALUE – HOME MORTGAGE ).

A lender will be much more willing to provide a secured loan, in this case, the loan is secured by the equity you have accrued in your home vs. an unsecured loan. This puts homeowners in a much better position when it comes to borrowing money. Many homeowners elect to leverage the equity in their home, freeing up cash that gives them the flexibility to meet other financial obligations, such as college expenses, major home improvements, a new car loan, starting a new business, or consolidating high interest loans, such as credit card payments.

Even if you do not have equity built up in your home, some lenders value the stability reflected by owning a home, and will lend based on a 120% valuation of your home. In other words, if your home is worth $100,000 and you have no equity built up, a lender may calculate loan eligibility based on $100,000 x 120% = $120,000, and allow you to borrow up to $20,000. Secured loans, based on home equity, or home ownership, tends to have a lower interest rate than unsecured loans.

1. Consider Terms of Loan

There is a wide range in the repayment terms when securing a second loan, or home equity loan on your house. Length of the loan can vary from 3 to 25 years, depending on the size of the loan, and monthly payments that you can afford. Interest rates will vary, based on your credit history, equity in your home, and your monthly expenses and income. The lender will make a judgment on your ability to repay the loan, and the risk they are taking by lending to you and will set an interest rate based on these many factors.

2. Run the Numbers

Financial calculations can be confusing and convoluted. Make sure you have a clear understanding of the numbers when comparing one loan to another. At first glance, a low monthly payment can be enticing, but make sure you understand all the terms of the loan. Compared to monthly payment amounts, the annual percentage rate (APR) is a better indicator of your total financial obligation when securing a loan. Other things to look for include: hidden fees, miscellaneous charges, and penalties for late payments. Early repayment penalties can also make a difference, depending on your individual situation.

3. Compare Online

Be sure to take advantage of the convenience of online shopping. It has never been easier to shop for a loan. Home Lender Depot offers the convenience of online shopping, a one stop shop that can provide a broad range of loan options. Use our handy online calculator tools, research online and apply online. Everything is available at your fingertips.

At the end of the day, your home can be your best option for bridging short term financial obligations when cash flow is a problem. And, as with all major financial decisions, make sure you clearly understand the financial commitment you are making when securing a home equity loan and that you have considered both your immediate situation and your longer term ability to repay the loan.