Home equity loans are a little different. If you have "equity" (your house is worth more than you owe on your mortgage), you can borrow that money using a home equity loan.

There are two types of home equity: loans and lines of credit. Both are often used for renovations, or to help with the down payment on a home.

Most people have heard of fixed-rate and adjustable-rate mortgages. A fixed-rate means your interest rate will stay the same until the loan is paid off. Adjustable-rate (also known as ARMs) have an introductory interest rate, which then adjusts up and down regularly.

A third type of loan you might not have heard of is a balloon mortgage. Here's how they work. They have a fixed rate, and your payments are calculated as if you had a regular 30-year mortgage. Then, after a certain period of time, the entire mortgage balance is due at once.

Here's an example. Say you have a seven-year balloon mortgage. You would make monthly payments for seven years, and whatever was left on the mortgage balance would be due in one large payment.

Home Equity Loans

There are two types of home equity loan. One is like a regular personal loan: You get the full amount of the loan in one lump sum, and the interest rate is fixed, so it won't change.

A home equity line of credit is different. It's a revolving line of credit, which means you can take out money as you need it (up to your credit limit). And you only make payments based on how much you've borrowed. The line will stay open until you close it—great news for anyone planning to borrow from it over time.

Most people don't have hundreds of thousands of dollars available to buy their home free and clear. Mortgages make the homeownership dream possible for the average person. They generally offer low interest, and there are many repayment options to fit your budget and future plans.

Home Equity Loans

Home equity loans and lines of credit can help offset the costs that come along with owning a home. They can help fund renovations, so you'll pay less interest than if you had put them on a high-interest credit card—and that interest could be tax-deductible.

You'll pay low or no fees, and the low monthly payments generally don't take a huge chunk out of your budget.

If your down payment is less than 20 percent, a home equity loan can fill the gap and save you thousands in private mortgage insurance.

Home equity loans are often helpful to people who:

• Want the full amount of the loan to be available in one lump sum
• Want an interest rate that will fluctuate less than a home equity line of credit
• Want to avoid private mortgage insurance, but don't have the 20 percent down payment they would need

Home equity lines of credit can be a good choice for people who:

• Want to have a line of credit that they can borrow from as they need it
• Plan to renovate their house over a long period of time
• Want to avoid private mortgage insurance, but don't have the 20 percent down payment they would need