A Home Equity Loan: Should You Take The Risk?
For most people, their most valuable asset is going to be owning their own home. By embarking on a home equity loan you are actually placing this substantial asset in jeopardy. Because of their low interest rates, home equity loans appear to be very appealing. Some times the interest can be a tax deduction and this also appeals to many. The bottom line though, is that can be a risky venture.
When faced with a large and insurmountable debt, such as house repairs, college education, or medical bills, and not enough cash to cover the cost, then perhaps a home equity loan is the solution. The equity that has been accumulating in your house can be utilized to obtain substantial borrowings. You will have a fixed term to repay the loan as well as the interest, which is usually at a low rate. Failure to do this will result in you losing your house.
Ordinarily, you will be making monthly repayments for a fixed term until the entire loan is repayed. The financial organization is legally obliged to reveal all costs, terms, the APR, and the payment terms. Once they have given you this information there are not usually any hidden costs that were not revealed in their original costings. With a home equity loan, lenders generally have a few days cooling off, where you have several days to cancel the loan after the account has been opened.
If you are thinking about a home equity loan, there are a few vital points to consider. After all, it is your home that you will be putting on the line.
Do you have any other options to cover your bills or cash flow problem? Contact your creditors and arrange a different repayment plan. Talk to a budget counseling organization for some valuable advice. Consult an impartial individual who you can trust. Please bear in mind that the lender representing the home equity loan organization is not impartial! It is in this person’s best interest to talk you into the loan.
If you select a home equity loan as your option you need to look into various loans on offer, through credit unions, banks and mortgage providers. You may be surprised at the different interest rates and terms that are available to you.
Sadly, there are disreputable lenders out there who have aggressive and abusive practices of lending money. If you are thinking about getting a mortgage in your senior years, you should read this article on senior mortgages.
Watch out for these sorts of suggestions:
* Balloon payment. You are close to losing your home. You have a home equity loan already and have not been able to keep up with the repayments. A different lender claims that they will refinance your loan and minimize your repayments. Does this sound too good to be true? The answer is YES! You need to read the fine print carefully in this situation. The repayments may be lower because you are only paying the interest charges monthly. At the end of the fixed term you then find yourself having to pay the total amount that you originally borrowed. This is what is known as the balloon payment.
* Loan for home improvements. After explaining to a contractor that you can’t really afford to go ahead with his quote, even though it seems to be really inexpensive. he suggests finance through a lender he uses all the time. After agreeing to this proposal, he starts to work on your house. You start to sign mountains of paperwork which you think you are too busy to read, and anyway the work has started, so what does it matter? Down the track, it becomes apparent that instead of signing up for a home improvement loan, you are actually now locked into a home equity loan, possible with high interest rates, and scary consequences if you miss your repayments. Make sure you always read the fine print.
* Equity stripping. Although you do not have a lot of income you have substantial equity in your home. You need funds. You are persuaded to sign up for a home equity loan even though you have voiced your doubts about your ability to meet the monthly repayments. In this instance you will lose your home. You will virtually be handing your house over to this financial lender who will be thrilled to take it off your hands. If you know you cannot make the repayments, do not commit yourself.
The advantage of a home equity loan is that you can receive a substantial amount of money. This can be used for any purpose, is usually offered at a low interest rate, and has to be repaid in a fixed term. Your interest rate could also be tax deductible in some instances. This may sound fantastic, but ultimately, if you are unable to meet your repayments, you face the very real threat of losing your family home. Serious thought should be given to this sort of financing as the repercussions can be extremely harsh.
Here’s something to consider before taking any of the above and simply making a decision based on that because there are ways to increase your home equity substantially before doing so; you can get detail on how to do it here. However, if you simply want to move fast with an established reliable lender, this is a lending service we liked.
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Tag: equity loans
December 1st, 2007 at 11:18 pm
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