Taking advantage of the equity in homes in order to get a loan is not a new concept; it's actually been practiced for many years. Every day people choose to tap into their home equity to pay for expenses like university tuition, home repairs, second homes, and even to pay off credit card debt. But never before have the stakes been higher when it comes to home equity loans and what you don't know can not only hurt you, but can cause you to lose your home. Before you decide to take out a home equity loan you should take a deep look at the pros and cons and determine whether or not the ends justify the means.

What is a home equity loan?

A home equity loan is pretty much what it sounds like; it's a loan that is written against the equity of your home. So let's say for instance you paid a down payment of $150,000 on a home that cost a grand total of $300,000. You then took out a home loan for the remaining balance of $150,000. Now the home is valued at $400,000 you now have $50,000 worth of equity that can be borrowed against for a home equity loan if you have a loan that stipulates that you can only borrow against half of the equity, otherwise you can borrow against the entire available $100,000.

There are many situations in which taking out a home loan is a wise decision but you must be careful and review the terms of the home equity loan in-depth before signing your name on the dotted line. Many home equity loans have certain terms that can lead to expensive penalties if they are not followed such as:

? Prepayment penalties- In some instances you may not be able to repay your home equity loan early at all, or you may be allowed to, but then may be stuck paying penalty fees. Look for a home equity loan that doesn't penalize you for paying early.

? Balloon payments- What may start off as a good deal could literally blow up in the end if you're not careful. Balloon payments on the end of your loan payment could be the hidden consequence of paying below standard monthly loan payments, so buyer beware in this instance.

? Hidden fees- Be on the lookout for any fees that you were not previously discussed and agreed to. A few extra hidden fees can mean the difference between savings and extra debt.

Remember that when you take out a home equity loan you are risking one of your most important assets, your home, so be informed.