Home Equity Loans

Home equity loans allow a homeowner to borrow money by putting up their home as collateral. People who need to borrow a relatively large amount of money or who don’t have good credit often find the home equity loan to be a good option.

A home equity loan is a type of second mortgage, not to be confused with a home equity line of credit.

Lenders may be more likely to lend money because they view a home equity loan as fairly safe. You can’t your house with you or hide it if you can’t pay back your loan, so the lender has a good chance of collecting the collateral. With your home up for grabs you are much more likely to make your payments.

Advantages of Home Equity Loans

Home equity loans can be attractive to borrowers for these reasons:
• They typically have a lower interest rate (or APR)
• They can be easier to qualify for if you have bad credit
• Payments on a home equity loan may be tax deductible
• Borrowers can get relatively large loans

Common Home Equity Loan Uses

Because homes tend to have a lot of value to borrow against, borrowers use home equity loans for some of life’s larger expenses. Some examples:

• To remodeling or renovating the house
• To pay for a family member’s college education
• To finance the purchase of a second home
• To consolidate high-interest debts

Some dangers of using a Home Equity Loan

Before using a home equity loan for any purpose, you should be aware of the dangers of these types of loans. The main thing is that you can lose your home if you fail to make the payments that are scheduled and required by the loan.
Another common pitfall of home equity loans is that unscrupulous people have found many ways to cheat unwary homeowners out of their most valuable asset. Make sure you know who you’re doing business with. If something doesn’t seem right, it probably isn’t. Like a high-pressure sales pitch or an inability to put things in writing. Then take a step back and make sure the deal is legitimate by calling your local BBB.

How to Find the Best Home Equity Loans

Finding the best home equity rates can save you thousands of dollars, at least. In order to get the best loan, it is recommended that you:

• Shop around. Try many different sources (banks, brokers, and credit unions)
• Manage your credit score and make sure your credit reports are accurate
• Challenge any inaccurate information to have it removed
• Ask your friends and family who they recommend
• Compare your offers to those found on websites and advertisements
• Negotiate with whomever you choose for your best terms

Additional Home Equity Loan Tips

To make the deal work out in your best interest, make sure that it is the best deal in the first place. Is a home equity loan a better fit for your needs than a simple credit card account or personal loan? If you’re not sure, figure it out. Or seek out professional advice. No sense putting home at risk.
You should plan out your budget ahead of time. Make sure that taking the loan will not overburden you and make sure you are able to make the monthly payments.
Review and consider insurance to cover the payments if something happens. You may or may not need insurance. If you’re going to include it in your program, try to pay the premiums monthly – not up front.