Is a term loan the right home equity loan for you? The standard term loan works best for those who have a fixed amount of money that they need to pay - a new deck or patio, a daughter’s wedding or perhaps an educational expense for a Master’s degree. You can obtain the loan at a fixed rate, pay it off over an agreed-upon amount of time, and have a steady payment over that period of time. This type of loan also works well for those who need to consolidate their debt by paying off high interest credit card loans.

You can borrow money at half the rate of the credit card interest rate, pay off more of the principal each month, and deduct the interest from your Federal income tax.

The beauty of a line of credit is that as the principal is paid back, it may be borrowed again. If you have a line of credit for $5000, and you borrow $3000 and then pay back $1500, you may still borrow up to $3500 more. This type of flexibility is useful for those with open-ended needs, like ongoing educational expenses, or the do-it-yourself home improvement project that spans a long period of time. Lines of credit usually come in the form of special checks, and the borrower may use them to draw on the principal as needed.

Be aware that some lenders may require the borrower to withdraw money at the time of the loan, and they also may assess an administrative fee each time a check is written against the account.

Another popular method of borrowing against your home is the reverse mortgage. The reverse mortgage is becoming increasingly popular among senior citizens who wish to pay off their debts and increase their retirement income. It is expected that as the Baby Boom generation moves towards retirement, use of the reverse mortgage will become more and more frequent.

Reverse mortgages differ from a traditional mortgage in that there are no monthly payments.

The funds can be paid out as a monthly income, taken as a lump sum or withdrawn as needed. Interest is charged each month and deducted from the home equity balance.

The most common reverse mortgage is the federally insured Home Equity Conversion Mortgage. This mortgage guarantees a retiree can remain in his or her home until he or she passes away or moves out. Any remaining equity in the home is the retiree's or his or her heirs. The lender gets none.

One advantage of reverse mortgages is that your ability to obtain one is not tied to your income. In fact, you can get one without any income at all!

You must, however, repay the loan upon your death or when the home is sold.

Reverse mortgages are not without their drawbacks, and they are not for everyone. While interest rates are comparable to conventional mortgages, there are high startup fees. Part of this is to insure the loan, which tends to be riskier than conventional mortgages, as the borrowers must be at least 62 years of age.

In addition, as the reverse mortgage draws upon the equity of the home, you could find yourself with no equity remaining if the value of your home should drop over time.

For more details on the loan application process and the fees involved, see our Loan Fees page