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The Basics of Home Equity Loans
Home equity loans allow a homeowner to borrow
money by pledging the house as collateral.
Borrowers who want to borrow a relatively large
amount of money or who don’t have good credit
often find the home equity loan to be attractive.
Lenders may be more liberal because they view home
equity loans as relatively safe. You can’t
disappear with your house or hide it if you
default on your loan, so the lender has a good
chance of collecting the collateral. Also, you are
likely to make your payments a priority if your
home is on the line.
Advantages of Home Equity Loans
Home equity loans are attractive to borrowers for
a few main reasons:
They typically have a lower interest rate
They are easier to qualify for if you have bad
credit
Payments on a home equity loan may be tax
deductible
Borrowers can get relatively large loans with this
type of loan
Common Home Equity Loan Uses
Borrowers use home equity loans for some of life’s
larger expenses, because homes tend to have a lot
of value to borrow against.
For example, you find that a lot of borrowers want
to
Remodel or renovate the house
Pay for a family member’s college education
Finance the purchase of a second home
Consolidate high-interest debts
Pitfalls of Home Equity Loans
Before using a home equity loan for any purpose,
you should be aware of the pitfalls of these
loans. The main thing is that you can lose your
home if you fail to meet the payment schedule
required by the loan.
Another common pitfall of home equity loans is
that scammers have found plenty of ways to cheat
homeowners out of their most valuable asset. Be
sure that you know who you’re doing business with.
If something smells fishy (like a high-pressure
sales pitch or an inability to put things in
writing), then take a step back and make sure the
deal is legitimate.
How to Find the Best Home Equity Loans
Finding the best home equity loan can save you
thousands of dollars – at least. In order to get
the best loan, I recommend that you:
Shop around. Try a variety of sources (banks,
brokers, and credit unions)
Manage your credit score and make sure your credit
reports are accurate
Ask your network of friends and family who they
recommend
Compare your offers to those found on websites and
advertisements
Additional Home Equity Loan Tips
To make the deal work out in your best interest,
make sure that it is the right deal in the first
place. Is a home equity loan a better fit for your
needs than a simple credit card account? If you’re
not sure, figure it out before you put your home
at risk.
Plan out your budget ahead of time. Make sure that
taking the loan will not overburden you.
Review and consider insurance to cover the
payments if something happens. You may or may not
need insurance. If you’re going to include it in
your program, try to pay the premiums monthly –
not up front. |
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