| The Advantages And Disadvantages Of A Home Equity Loan |
| Articles - Mortgage |
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The home equity loan became a very popular item in the mid 90' s. Everyone was getting them. The housing market was booming and the economy was doing just fine. They were also a way for a homeowner with less than perfect credit to get their hands on some major cash. Lenders saw it as a win-win situation.
The home equity loan became a very popular item in the mid 90' s. Everyone was getting them. The housing market was booming and the economy was doing just fine. They were also a way for a homeowner with less than perfect credit to get their hands on some major cash. Lenders saw it as a win-win situation. They got two payments for the same property. The mortgage with its interest as well as the new home equity loan with its interest rate which was generally a lot higher. The icing on the cake for a lender was the fact that if the deals fell through there was always foreclosure. Once they got the house they would sell it and the process began again. The greatest benefit to the borrower is the ready cash that is almost never denied. If you have a home worth 200,000 and you have paid 150,000 of it you can borrow 80% of that equity. The lenders advertised the home equity loan as a way to get those much-needed renovations done. They are also great for consolidating debt. If you have a high balance on credit card with a high interest rate a home equity loan could be your bail out. Another advantage to getting a home equity loan is the fact that the interest is tax deductible. Using the home equity loan option is not always a smart choice. You have already seen the worse case scenario happening all over the country. The economy went bust and the job market faltered. This left a lot of people with these home equity loans and mortgages with no way to meet the payments. Foreclosure signs are dotting the neighborhoods like billboards along a highway. This is its major disadvantage but it's enough to make you give serious thought of taking out this type of loan. That is why you would be ill advised to take out this type of loan for something as frivolous as a vacation. It would not be a good thing to know that for a few days on a sunny beach in Hawaii you lost your home, before applying for a home equity loan you should do the math. A loan calculator can give you a ballpark figure when estimating the amount of the loan payments. If you are not absolutely certain you can make each payment on time it may not be worth the risk. Using a home equity loan to increase the value of a property is one of the main reasons that most people get them. When considering renovations you should always have in mind that if you need to sell will the addition add real monetary value? Adding solar panels or additional bed and bathrooms will add value a swimming pool not so much. This is the time when you have to make a budget and stick to it. If you take out a loan to handle credit card debt you should be very careful to not let the debt reach such a critical stage again. The disadvantage of taking out the loan is losing the home of your dreams. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Next, find out more about home equity loans in the best specialized website available on such delicate topic. |