Home Equity refers to the amount that a property is worth beyond what is owed on it. The appraised value minus the amount owed on the house -- can open the door for a loan at lower interest rates than credit cards. This means depending upon the improvements done to your home, extra monies may be available for you to access.

The loans granted for home equity are of two (2) types:

• Fixed rate loans -- the borrower gets the whole loan amount needed in one go.

• Adjustable rate loan -- you are given a home equity line of credit and approved for a loan up to that credit limit (rates change every time the Federal Reserve raises or lowers the federal funds rate).

The collateral used for applying for this loan is the home equity. Home equity loans can be approved with bad credit also. Any credit score below 600 is considered bad credit by lenders. Bad credit borrowers can qualify for home equity loans at flexible terms of repayment and comparatively low interest rates and the interest payments are tax-deductible. Check with your local bank loan officer and tax advisor.

A home equity loan requires you to pay principal and interest every month for the life of the loan whereas a home equity line of credit allows you to pay just the interest for several years if you choose to do so. The decision to which loan type to choose from will depend upon the purpose of the money.

It is suggested that average debt payments should not exceed 20% of take-home pay and is safer to accept a 10-15 % debt level. Higher than that gets near the debt overload position for most people.

As long as you are making payments, your debt is decreasing and your net worth is increasing. The ability to accelerate your debt payments would save significant amounts of interest.

The best advice in regards to getting a home equity loan is to apply only for the amount you need if you feel confident in the ability to continue payments and not risk losing your home altogether.