| Home equity loans or lines of credit allows you to | | | | ask about all possible fees. |
| borrow money, using your home's equity as collateral | | | | The major disadvantage of a home equity loan is that |
| where equity is the difference between how much the | | | | you are using your house to get approved for the loan. |
| home is worth and how much you owe on the | | | | For some people who have flawless credit this might |
| mortgage. A home equity loan (or line of credit) is a | | | | not be a problem, because they can insure themselves |
| second mortgage that lets you turn equity into cash, | | | | that they will do whatever it takes to pay off their loan. |
| allowing you to spend it on home improvements, debt | | | | However, instances have arisen where individuals |
| consolidation, college education or other expenses. | | | | have forgotten or were they are not financially able to |
| Advantages and Disadvantages of the home equity | | | | pay for their loans. So at this point you’re |
| loans | | | | wondering what happens if you cant pay your home |
| Advantages: There are many other advantages of | | | | equity loan? With all financial decisions come risk and |
| home equity loans. The loan payments on these loans | | | | the risk of losing your home wouldn’t be an |
| are tax deductible. Home buyers can take bigger sum | | | | option, especially if you have a family. |
| equity loans. These loans also carry a low rate of | | | | Home equity loans are best used for home |
| interest. But it’s best to heck the prevailing | | | | improvements that will increase the value of your |
| interest rates from many lenders and banks before | | | | home. Some improvements, such as swimming pools, |
| you actually go in for a loan. It’s also important | | | | don't usually increase the value upon resale. Others, |
| that the borrower check the credentials of the lenders | | | | such as additional bathrooms, living space, renovated |
| before applying for a loan. They are many scam and | | | | or updated kitchens, etc., generally do increase the |
| con artists who can take away your home in lieu of | | | | value of your home. |
| giving you a home equity loan. The borrower also risks | | | | The bottom line is this: if your home is worth more than |
| losing the home in case they default on the loan. | | | | you owe on it, a home equity loan can be a great way |
| The two major advantages of borrowing with a home | | | | to take advantage of this, but it can also get you into |
| equity loan are lower interest rates and potential tax | | | | serious financial trouble, and should be used wisely. |
| savings: | | | | Why not use the equity in your home as part of your |
| - The interest rate you will pay on the average home | | | | retirement fund instead of spending it on things that |
| equity loan is generally lower than the interest rate you | | | | may not last? |
| will pay on the average credit card or any other type | | | | Over the life of home loans - sometimes up to thirty |
| of non-secured debt. | | | | years - your financial circumstances can change |
| - For home equity loans, you can generally deduct the | | | | dramatically. Starting a family, changing jobs, children |
| interest you pay. The interest you pay on credit cards | | | | leaving home and many other factors can alter your |
| and other types of personal loans is generally not | | | | financial circumstances over the term of the loan. A |
| tax-deductible. | | | | home loan that is right for you at the beginning has the |
| Disadvantages: | | | | potential to become the worse mistake you ever |
| Risk of losing home. If you can’t repay or | | | | made. |
| refinance the loan, then you may be forced to sell or | | | | Refinancing can be useful and financially rewarding but |
| lose your home. Your home is the collateral for the | | | | it can also carry risks. It takes time and costs money, |
| loan. Being late or missing loan payments can trigger | | | | so before you decide to change to another lender, ask |
| foreclosure within 60 to 90 days. | | | | yourself if it is really the right thing for you. |
| Rising interest rates. With a variable interest rate, most | | | | - Are you happy with your existing lender? Have they |
| home loan rates change when the economy changes. | | | | been professional and helpful in all the dealings you've |
| This means your monthly payments can rise and fall. | | | | had with them? |
| Be sure you know what the cap is on the | | | | - Are you happy with your existing loan? Is the interest |
| loan’s interest rate. The cap sets how high your | | | | rate comparable to other lenders? Could you use |
| interest rate can increase each year as well as how | | | | some extra features offered with other products? |
| much it can increase over the whole loan time period. | | | | Has your financial situation changed? Maybe you've |
| Fees. Lenders can charge a variety of fees including | | | | started a new job or become unemployed. |
| origination, application, and withdrawal fees. Be sure to | | | | |