| Home equity loans give individuals a tool to extend their | | | | and procedural fees later on in the term of the loan, |
| existing credit line by securing debt on the equity value | | | | which may affect the actual amount payable by the |
| of their existing homes. This access to easy and | | | | consumer. |
| cheap money can lure the borrower into securing a | | | | Higher interest payments: |
| debt for reasons which otherwise could have been | | | | If the equity loan is financed at a floating or variable |
| funded through wise money management. | | | | rate, then it is subject to changes depending on the |
| Following are some home equity loans risks: | | | | interest rate scenario in the economy. This may be |
| Risk of losing one's home: | | | | because the interest payments fluctuate out of the |
| The biggest risk involved in home equity loans is that | | | | bounds of the borrower's reach. |
| of the borrower being rendered homeless. In the case | | | | Besides these major risks, the home on which the loan |
| of the borrower being unable to make timely | | | | is secured cannot be leased during the term of the |
| payments of the interest and the principal, the lender | | | | loan. The loan on home equity will also effectively |
| can claim the existing house of the borrower. Thus a | | | | increase the time required to pay off the debt on the |
| default in payment can lead to the loss of the home, | | | | existing home. |
| which is used as collateral for the loan. | | | | Many times, the easy availability of an equity loan can |
| Hidden loan conditions: | | | | tempt a consumer to take the loan for day-to-day |
| Consumers who do not pay careful heed to the fine | | | | expenses, which actually add to his existing debt |
| print may fall prey to the intrinsic conditions of the | | | | burden. |
| home equity loan, particularly those pertaining to | | | | The investment made by the money raised through |
| principal and interest payments. For example, a balloon | | | | raising an equity loan should be financially more |
| payment of the principal may add to the debt burden | | | | rewarding than the interest paid on the loan. |
| of the borrower and the inability to make the payment | | | | All these factors should hence be taken into |
| may result in foreclosure and thus loss of the | | | | consideration before taking a home equity loan. |
| borrower's house. The lender may also impose legal | | | | |