Low rate home equity loans are an attractive option for millions of Americans. Home equity loans are based on the equity or value you have in your home. Your home is used as collateral for the loan. If you are just hearing about this option, or are considering it, here are some common questions and answers:

1. Why are these loans so attractive?

The most common reasons are as follows: low rate home equity loans are a good way to lower your debt interest rate; they are also a wonderful way to finance a new car or home repairs at a lower interest rate; they also can provide cash for starting up a new business. Some parents even take out these loans to help finance their child's college education or pay medical or dental bills.

2. What are the advantages of a low rate home equity loan?

The biggest advantage is a lower interest rate, which could save you thousands of dollars. Also, the interest on a home equity loan is tax deductible, unlike credit card interest or other loans. Of course, you should see your tax professional or advisor for the exact details, but this could potentially save you a lot of money.

3. Are there any disadvantages?

A home equity loan is using your home as collateral. This means if you default on your payments (translation: don't make your payments), you may possibly lose your home. Obviously, you want to make sure you make your payments on time every month. Another disadvantage is the fact that you reduce the amount of equity or ownership you have in your home; instead you are trading that for the cash you need right away.

4. What will a loan cost me?

First, you will pay an interest rate. To get the best rate, you will want to shop around and compare a few different reputable lenders. The rate may be partially based on your credit score. Also, you will pay closing costs on the loan. Closing costs include items like lawyer's fees, appraisal fees, credit report fees, and application fees. Generally speaking, closing costs may range anywhere from 2-6% of the amount of the loan.

5. What steps should I take after getting a low rate home equity loan?

Be sure to keep good records. Put all your paperwork in a safe place. Keep accurate information of your payments. Most importantly, make your payments on time.