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Home equity loans have become very popular among home owners, and with good reason. The benefits this type loan has to offer outweigh the drawbacks by far and it is relatively easy to qualify for as you pledge your home as a collateral for it. The interest rates are relatively low and they are also tax deductible! The obtained funds can be used for any purpose and even lines of credit are available for those seeking the same advantages but looking for more flexibility.
There really is a lot to say regarding home equity loans, but of course not everything should be seen through a rose-colored glass. This loan also carries disadvantages which should not be taken lightly and must be considered even before deciding this is the way to go. Here you will find a list of things to consider before applying.
Observation # 1: Have you stopped for a moment to consider the fact that this is a secured loan? Meaning that you will be borrowing the money against your house. This is one of the reasons why lenders offer such good terms: they run very few risks. So keep this in mind before applying, make sure you will be able to repay the loan timely, or you could lose your home in the process. And this is not an overstatement.
Observation # 2: Not every lender lets the borrower know this, but they should. If you sign the contract, you have a period of time to change your mind. You have three days by law to request a cancellation of the contract.
Observation # 3: It is a common mistake to think that fees charged by lenders are always the same ones. While interest rates and loan terms might not vary from lender to lender, fees are completely personal and each lender will charge whatever fees he might want. You should request loan quotes from each lender and choose the appropriate lending institution accordingly. These loan quotes should have all the fees and charges properly disclosed so as to achieve a good comparison between them.
Observation # 4: Did you know that the rate on most home equity loans is adjustable? Make sure you will be able to afford the adjustments and ask the lender what type of rate your loan will have if you are not sure. Otherwise, it will be one nasty surprise.
Observation # 5:Be careful with your money during the application process. Any debt you might take at this point will have a negative impact on your credit report and you might face a decline on your application because of this. Also, moving large sums of money between your bank accounts might require further explanations to the lender and will surely delay the application process.
Observation # 6: If you are in a desperate situation and in need of a high sum of money your current equity does not cover, you might be tempted to apply for a High Loan-to-value Loan. With this type of loan you might obtain up to 125% of the value of your property. I am sure this is very attractive, but bear in mind that if your home does not increase in value throughout the life of the loan, you will have to find other means of paying for the additional money you received. |
