Other ways to tap home's equity

1.0 Hybrids

What it is: These are usually a variant on home equity lines of credit or home equity loans.

Factors to consider: There is a lack of uniformity in this part of the lending market and the loan characteristics vary widely. Make sure you understand all the contract details when taking this type of loan. This work sheet can get you started.

Tip: Use this work sheet, "Questions to ask lenders," when interviewing lenders.

2.0 Piggybacking

What it is: This type of loan involves taking a primary and secondary mortgage concurrently, usually to avoid Private Mortgage Insurance (PMI) or in place of a down payment. It consists of a primary mortgage for 80 percent of the home's value, plus a second mortgage for the rest of the money needed.

Factors to consider: This type of borrowing is especially sensitive to slides in the housing market because it entails borrowing a large portion of home equity. Unfortunately, this type of loan tends to have a higher-than-average rate of default, perhaps because it's easy for borrowers with little credit history to overextend themselves.

Tip: Crunch your numbers using our mortgage calculator.

3.0 Reverse mortgage

What it is: This is a special type of mortgage that enables older homeowners to convert the equity in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans or mortgages, a borrower does not qualify on the basis of income but on the value of the home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Factors to consider: Reverse mortgages are only available to seniors and subject to restrictions. Of reverse mortgage loans, only the Home Equity Conversion Mortgage (HECM) is insured by the federal government. These mortgages can carry a large price tag. Closing costs can be rather steep, making these loans expensive for people who borrow from them for only a couple of years.

Tip: Crunch your numbers using our mortgage calculator.

4.0 Cash-out refinancing

What it is: This is a new mortgage for a larger amount than is owed on the current mortgage with the borrower receiving the difference in cash. Audio story: What's a cash-out refinance?

Factors to consider: This type of mortgage usually has closing costs that can usually be gotten around with a home equity loan. Know the terms of your first mortgage and if it makes sense for you to refinance, says Nancy Flint-Budde, a certified financial planner. If you're 20 years into a 30-year mortgage, you're paying more principal than interest. In that case, it might not make sense to refinance, even if your current rate is slightly higher. Her litmus test is threefold: This type of loan is really only smart if: you get a lower rate, a shorter repayment term and can roll in closing costs so there's no cash out of pocket.

Tip: Mash the numbers with our spiffy refi calculator.

Home Equity Loan

hat are fixed rate home equity loans and home equity lines of credit (HELOCs)?

A home equity loan is a loan that you take out against the value of your home.

A home equity loan can be either a fixed rate equity loan, or a variable rate (sometimes fixed rate) equity line of credit, or HELOC. In either case, the term of the home equity loan is fixed, usually at 10 or 20 years.

When should I get a fixed rate home equity loan or HELOC?

Homeowners typically take out fixed rate home equity loans, or HELOCs in one of several cases:

1. A homeowner could take out a fixed rate home equity loan or HELOC to consolidate debt, usually higher rate debt, such credit cards with high interest rates.
2. A homeowner could also take out a fixed rate home equity loan or HELOC to use as a down payment on either a second home or an investment property.
3. A third reason that a homeowner would take out a fixed rate home equity loan or HELOC would be to use a second mortgage, along with a first on a home purchase or refinance.

Make sure a home equity loan is the right option for you. The University of Illinois has listed out the advantages and disadvantages of home equity loans. Compare them here.

What are the benefits of having a fixed rate home equity loan or HELOC?

One benefit of taking out either a fixed rate home equity loan or HELOC on your property is that the interest on debt you pay off, such as credit cards is now usually tax deductible. The interest rate on the home equity loan or HELOC is usually lower than the interest rate on credit card debt.

Another benefit of taking out a fixed rate home equity loan or HELOC is that it is sometimes an interest only loan, meaning you are only paying off the interest, giving you a lower payment each month. Check the rates on both fixed rate home equity loans and lines of credit when determining what is best for your situation.

Read the fine print when looking for a fixed rate home equity loan or HELOC.

Always understand the terms of either a fixed rate home equity loan or variable rate HELOC when shopping for either. Be aware of the maximum interest rate you can pay, and know about prepayment penalties. Lenders of these types of loans usually get a fee either at closing, or when the loan gets paid off early, so make sure you know the terms.

Resources when looking for a fixed rate home equity loan or HELOC

Loan.com wants to make your search for a fixed rate home equity loan or variable rate HELOC as straightforward as possible for you by arming you with the tools that will help you to make informed choices when looking for a fixed rate home equity loan or HELOC. These tools include:

1. The Borrower's Bill of Rights - Our Borrowers Bill of Rights helps you avoid unethical lenders and get the most from ethical lenders.
2. Truth about Loans - Our in-depth library of helpful articles tells you what to expect at every step of mortgage process.
3. The Ethical Lender Rate Directory - The Truth about Loans section allows consumers to search for mortgage rates while at the same time flagging those mortgage lenders that abide by the Borrower's Bill of Rights and are in good standing with the Better Business Bureau.

Do your homework and think twice before signing. Refer to the FDIC (Federal Deposit Insurance Corporation) website for more information on home equity loans, and also check out RealEstateABC's interest rate outlook report.