Do you REALLY need a home equity loan?

Your equity is the amount your home is worth, on the market, minus the amount you owe your mortgage broker. For example, if your property is worth $200,000 and the balance you owe your mortgage broker is $100,000, then the equity in your home, the portion of your property that you own freely, is $100,000.

A home equity loan is a loan that uses the equity in your home as collateral. That means you’re using your home as collateral that you’ll pay back the loan. Before you even consider borrowing against your home equity, you need to understand that the loan reduces your equity by the amount of the loan, and if you don’t repay the loan, you could lose your home.

These loans have advantages and disadvantages compared to other types of loans. You should consider the “advantages” and “minuses” of borrowing against your home equity before applying for a home equity loan.

Plus

*Interest paid on a home equity loan is tax deductible, just like interest on your mortgage. Of course, this is not the case with credit card interest.

*The home equity loan rate may be lower than other types of loans, such as credit card debt, because you are using your property to guarantee that the loan will be repaid.

*A home equity loan gives you a source of funds for big, important purchases: a college education, home improvements, a medical emergency, or other emergencies that may arise.

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*You must meet your mortgage loan payments or you could lose your home.

*You will often have to pay closing costs, which can be substantial, this is money that will not be recovered and will decrease the value of your loan.

Having excess equity in your home will make you the target of unscrupulous sales tactics designed to rush you into an expensive loan you may not need. If you feel like you’re being pressured to borrow, just say no; always take your time when getting a home equity loan.

There are reasons that make a home equity loan a good option, but there are also reasons that it is not. You must consider them wisely.

Good reasons to take out a home equity loan.

*Improving your finances: A home equity loan can consolidate your debts by paying off high-interest credit cards or other high-interest loans that aren’t tax deductible.

*Invest in your home: You can use a loan to increase the value of your home by using it for needed improvements or repairs.

*Invest in your future: Home equity loans can help finance an education or start a business.

Bad reasons to take out a home equity loan.

*Spend money on luxury items: Don’t put your house on the line for that new car, big boat, or expensive trip. You should save until you can afford it.

*Use the money for living expenses: If you spend more than you earn day after day, a loan will only delay the “inevitable”. Try to find ways to reduce your expenses instead. A credit counselor can help.

*Lend the money to a friend or family member – Remember, it’s your home that’s at stake. Don’t let a friend or family member pressure you into getting a loan for them. If they don’t pay you back, they don’t lose anything, but you could lose your home.

If you’re thinking of getting a home equity loan as a last resort to get out of serious financial trouble, WHOSE. Chances are you’ll be in debt again and soon you’ll be as bad as you are today, and possibly lose your house too. Get help instead! A credit counselor can help you improve your finances at little or no cost to you.

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