A home equity loan or line of credit allows you to borrow money using your home as collateral.Many people take out loans every year, and with so many different loan products around there is something to suit most needs. For homeowners that have equity in their properties the obvious choice is a home equity loan, which offers affordable borrowing and very low interest rates. A home equity loan is based on the amount of equity you have in your property. The equity in your property can be calculated by deducting the outstanding mortgage on your home from the market value of your home - the remaining balance is the equity, which is what you would have left over in the event that you sold your property at market.

Using the borrower's residential property as collateral, a home equity loan is an open-end loan that is similar to a line of credit. It allows a homeowner to borrow money based on the amount they have invested into the ownership of his or her home. A home equity loan is also known as a type of second mortgage. With the house as collateral, it can be sold to pay the remaining debt if managed improperly.

Unlike other lines of credit like a standard second mortgage or a credit card, the interest rates on a home equity loan are typically adjustable, and the interest payments sometimes will be considered tax-deductible. When managed correctly, home equity loans can be a valuable resource for those that use them, and can often be a much better option than taking out a new loan. However, like any line of credit, it must be managed carefully in order to avoid more financial difficulty down the road.