 TITLE: How Does a Home Equity Loan Work? CONTENT: Pros and Cons of a Home Equity Loan\n-----------------------------------\nThere are plenty of pros to home equity loans. For example, interest rates are often low compared with credit cards, personal loans and even many HELOCs. Depending on how much equity you have, the amount of money you have access to can be large. You could even get a tax break: According to the IRS, if you use the equity loan to substantially improve your home, you may be able to deduct the loan's interest on your taxes.\nAs long as you can easily afford the payments, taking out a home equity loan could be beneficial if it helps you pay:\n*   Uncovered medical or dental bills\n*   Home and car repairs\n*   Legal expenses\n*   Larger-than-expected tax bills\n*   Necessary travel costs\nPaying off high-interest debt such as credit cards with money from a low-rate home equity loan can also be savvy, but should be approached with caution. If the bills were from overspending and you don't solve the underlying issue, you could rack up the balances again. At the same time, you're trading unsecured debt for secured debt, putting your home at risk.\nHome equity loans do have drawbacks, however. Closing costs can run 2% to 5% of the loan, so a $100,000 home equity loan could cost you as much as $5,000. Using up your equity could keep you in debt longer, and you'll be committing to making payments over many years. If you fall behind on payments, the lender has the right to foreclose on your property.\nAlso, if your home's value drops, you'll owe more than the home is worth, which will be a problem if you need to sell it. For example, if your home is worth $300,000 but you owe $350,000, you'll take a loss rather than earning a profit you could use to help pay for your next residence. END