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The equity in your home is one of your most valuable financial assets. While a home equity loan is a great resource for letting you benefit from that asset, it does carry risks. Failure to repay the loan could mean the loss of your residence. Make sure that you honestly answer these questions before getting one.
- Do I need a home equity loan?
- Will I be able to repay the loan?
- Will I be able to keep my other debt down?
You can use the loan for a number of different things including making home improvements, paying off debt, buying a car or taking a vacation. Some home equity loans can even be tax-deductible, but you should consult with a tax expert for questions on that issue.
You will find most loans come with variable interest rates, some come with attractive low introductory rates, and a few come with fixed rates. You also may find most loans have large one-time up front fees, others have closing costs, and some have continuing costs, such as annual fees. You can find loans with large balloon payments at the end of the loan, and others with no balloons but with higher monthly payments.
No one loan is right for every homeowner. The challenge, then, is to contact different lenders, compare options, and select the home equity credit line best tailored to your needs. Be sure to review the home equity contract carefully before you sign it. Do not hesitate to ask questions about the terms and conditions of your financing.
To avoid an unsafe loan here are some tips to remember:
- The lure of extra money or the chance to reduce monthly credit payments can be very costly in the long run. High interest rates and other credit costs could get you in over your head.
- Credit insurance may not be a good deal from a lender. If you want the added security of credit insurance, shop around.
- Don’t sign a loan agreement if the terms are not what you were given when you applied.
- Ask for an explanation of any dollar amount, term, or condition that you don’t understand. Federal law is very clear about what credit and loan term information must be provided in writing when you apply for a loan and before you sign any agreement.
In addition, shop around for the best loan terms and interest rates. Contact lending institutions, such as banks and credit unions, and consult a legal or financial advisor, or someone you can trust before you make any loan decisions. Or contact your local Fair Housing Office, legal aid, or senior services organization for information and help.
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