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Home Equity Loans: Benefits & Pitfalls

Interested in Chicago home equity loans?

First of all, you have to know what a home equity loan is and before you decide on leveraging on your home’s equity, you also would need to know the benefits and pitfalls of home equity loans in Chicago.

Let’s say you already have a Chicago mortgage, but you still need more money – if you borrow money again and you leverage your existing home’s equity on it, then that is a home equity loan. A Chicago home equity loan, in other words, is just a second mortgage.

What makes a home equity loan interesting is that it carries several benefits, (and sometimes pitfalls) for the home owner. Depending on how you use it, a home equity loan can either be your savior or your ruin.

There are two types of home equity loans – these are:

  1. Fixed-Rate. This variety sees the amount you pay and the interest rate remains constant for the duration of the loan.
  2. HELOC (Home-Equity Line of Credit). This is the more complex of the two as the rates can vary. Your spending limit is pre-approved and you do your transactions through a credit card, or the use of special checks.

Both types of home-equity loans have fixed or set terms (5-15 years), at the end of which full payment should be made. Full payment of the balance is also expected if ever the subject house is sold.

The home equity loan is one of the more popular—some say, controversial—loan schemes ever formulated. As you can see, its terms, conditions and consequences are different from those of your Chicago mortgage.

Below are some benefits and pitfalls of home-equity loans in Chicago:

Benefits of Home-Equity Loans:

  • Easy acquisition of cash;
  • Lower interest rates compared to other loans;
  • Interest paid is tax deductible;
  • Vehicle for consolidating debt;


  • Provides a seemingly easy solution to financial problems;
  • Leads to “reloading” (cycle of borrowing to pay off existing debt);
  • Paying more at the end (125%)

Of course, there is a right way and a wrong way to use home-equity loans in Chicago. It all depends on the attitude and discipline of the borrower.

The benefits offered by a home-equity loan can serve you well if you are acquainted with your financial capabilities, like the ability to make the monthly payments because your income could support it. From there, the low interest rates and tax deductibility of Chicago home-equity loans could only work to your advantage.

However, if the borrower only sees the quick cash aspect of this type of loan, then he or she could fall into a trap of reloading. Reloading is when a borrower develops the habit of taking out a loan to pay off another loan and then using the balance remaining to buy other stuff, which then leaves him or her in need of money again. It produces a cycle that only serves to bury one deeper in debt.

If you already have a Chicago mortgage and you are contemplating taking out a second one through a home equity loan, be sure to evaluate your financial status and capabilities, as well as your understanding of the terms of the loan before you actually apply for it.