Perhaps you’re looking to pay for big expenses like your kids’ college education, you’re suddenly faced with large and unexpected medical bills, or you’re looking to do major home renovations or renovations. A great way to raise the funds is by opting for a home equity loan. Based on your credit history and the mortgage loan value of your property, you can take out a safe and convenient loan for your home.
What are home equity loans?
They are loans taken out with the borrower’s equity or market value of their home as collateral. Equity is calculated as the difference between the market value and the outstanding mortgage balance.
Home equity loans have recently made a comeback after many lean years in the market. For people with good credit, interest rates are lower than other forms of borrowing such as personal/car loans or credit cards.
Home equity loans may be easy to come by if you meet the eligibility criteria and make financial sense if you have the equity, but there are several inherent risks:
• Floating or variable interest rates – they could always increase in the future
• Too easy to spend – You could end up with “buyer’s regrets” after spending yourself on a bunch of unnecessary things
• Full Repayment – If you’re not financially savvy and don’t hold the reins, you could find yourself in trouble at the end of the loan period
• Loss of Property – Late payment leads to foreclosure and you could lose your home yourself
For this reason, exploiting the value of your home when taking out a home equity loan without fully understanding the process and its implications can be extremely risky.
Protect yourself and your family by doing your research before taking out a home equity loan. It could be a disaster to wait if you are unaware of the implications and implications.
Here are some pointers to keep in mind:
• Remember that it is still a mortgage
• Keep accurate records of all repayments and charges, including bill statements, bank records, canceled checks, etc. so you can challenge inaccuracies with solid evidence.
• Read the loan agreement very carefully
• Never hire unlicensed contractors to do any work on your home
• Use the loan amount to make real improvements to your home or for whatever specific purpose you borrowed
• The loan amount can be used to bridge unexpected events/crises if you don’t have an emergency fund
• It can be used to build a nest egg for retirement
• Check if tax benefits or deductions are available
• It’s tempting, but never use your home equity loan to buy a bigger TV, boat, car, cruise, vacation, and so on
• If you plan to sell your home soon, avoid taking out a home equity loan
• Don’t take out unnecessarily large loans – be realistic. If the market falls, you could be stuck in a massive redemption situation
• Don’t let heavy marketing tactics pressure you – educate yourself and do your research
• Consult your family before taking out a loan
• Never sign documents that contain spaces or that you have not read and understood thoroughly
• If necessary, have documents checked by an expert
• Assess your ability to repay and assess whether you can really afford it
Today, interest rates are at historic lows and the economy is looking up. Many homeowners consider taking out a home equity loan, and it is indeed a great option if you have the credit and eligibility. Plus, if you’ve also fully assessed the risks and benefits, contacted a reliable, well-established, and reputable institution or organization, and did your research well.