There are various elements to a Home Equity Loan that differ according to you circumstances and the banks standards. But if you want to know just the basics, then you might want to read on.

As the name implies, these loans are obtained based on the amount of equity you have available to use as collateral. But just having collateral is not enough. To qualify, you also need to have a Loan to Value, otherwise known as LTV, at 80 to 90% or below. Some banks require it to be 80% or below and others at around 90% and below. This is different depending on the bank.

The way to figure out your LTV is by taking the amount you still own on your home, and dividing it by the total value of the home (the total value usually being the lowest assessed value).

For example, if you still own $100,000.00 on your home and the assessed value is $200,000.00, your LTV is 50% ($100,000.00 divided by $200,000.00 equals 50%).

If you already have more than one loan out on your home, the LTV would be a Combined Loan to Value, or CLTV.

There are generally three ways an Equity Loan is used. One way is to use it to make a large purchase, such as remodeling the kitchen. The other reason someone would take out an equity loan is to consolidate all their debt, and place them under one single lower interest loan (which is usually not a good idea in and of itself). And the third way this type of loan is used is in the form of a HELOC or Home Equity Line of Credit.

A HELOC, as the name indicates, is a line of credit that is given to the borrower that sits in an account available for them to withdraw from of deposit to as they wish. It is similar to a credit card account, but usually with a much lower interest rate—and no interest if you pay it off at the right time.

That's the basics. And when an equity loan it is used in the right way, it can be a great financial tool.

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Alfred Spengly currently works with a company that has been registered with the better business bureau since 2006 with zero complaints. It is a company that strives for its customer's satisfaction, helping individuals and families manage their own money by providing the tools they need to establish their own financial security.

Personally, Alfred has worked in the financial field for almost 15 years.