Now that we’ve scared you enough with the risks involved in using home equity, we should tell you that there are some benefits.

A benefit of a home equity loans and HELOCs is that your credit score and credit history don’t really have any effect on getting approved for the loan, or on the rates that you pay. That’s because your home is the collateral. This may be good if your credit score isn’t so hot, but keep in mind that, if you don’t make payments, the lender can repossess your home. Also, just like a mortgage, up to $100,000 of the interest you pay on a home equity loan is tax deductible.

The process to get approved for a home equity loan or HELOC isn’t nearly as big a hassle as getting a mortgage. Generally, all that’s required to apply is an appraisal of your home and verification of your income. This also means that approval doesn’t take as long. Usually, you can get a home equity loan or HELOC in a matter of weeks– it’s much quicker than the months-long ordeal to get a mortgage.

But make sure you understand the fees involved. Of course, they’re less than those for a mortgage. This makes sense, since the loan you’re taking out is smaller. When it comes to fees and interest rates on these loans, you may want to shop around a little. Don’t feel obligated to get your home equity loan or line of credit from the same lender as your mortgage – the two aren’t connected in any way. But do check with your mortgage lender – they may be more likely to cut you a deal, since you’re already a customer.

Also, read all the fine print on a HELOC. Some lenders require you to withdraw money—whether you want to or not—several times a year; they may also exact a heavy penalty (measured in thousands of dollars) if you decide you don’t want the loan anymore, pay it back entirely and close the line of credit (this is called a “prepayment penalty”). Not all loans have these conditions, so if you’re thinking of getting a HELOC but have no real intention to use it, make sure you can leave it alone without it costing you anything extra.

One last tip: go to a credit union. Credit unions often offer better home equity rates than other banks and lenders. If the credit union doesn’t work for you, shop around your local banks as well as online lending sites like Lending Tree and E*Loan.

Want to Know More?

• What's Home Equity?
• Should You Use Home Equity?
• Grilling Guide: Questions to Ask When Shopping for Home Equity