The Pros And Cons Related With Home Equity Loans

Posted by nick_niesen on October 29th, 2010

The Pros of Home Equity Loans

1. The advantage with a home equity loan is the ability to use the loan amount any way you want, such as funding emergency, paying off debt, college, a vacation, or home renovation.

2. Interest rates for a home equity loan tend to be lower than credit card rates or consumer loans. Another advantage associated with home equity loan interest rates is that it is tax deductible up to the equity value in your home or up to $100,000 - whichever is less. (note - the tax-deductible portion is based on a percentage)

3. Home equity loans are also quite flexible, in the sense that it allows you to choose when to use the money, and you may be able to decide when to repay the principal.

The Cons of Home Equity Loans

1. You may risk losing your home with a home equity loan if you canít repay or refinance the loan, since your home is the collateral for the home equity loan, similar to an additional mortgage on your home. Foreclosure can happen within 60 to 90 days of late/missed payments.

2. For people experiencing career changes, home equity loan can also been an advantage, putting your home at risk. If the value of your home falls, it is probable that you might be left with more debt on your property than itís worth.

3. Home equity loan interest rate is dependent on the change in economy, causing your monthly payments to rise or fall. So, itís important to know the cap on the home equity loanís interest rate, which determines how high your interest rate can increase each year, or over the whole loan time period.

4. Home equity loan lenders can charge several types of fees such as application, origination, and withdrawal fees.

Things to remember when getting Home Equity loans:

1. Home equity loans are ideal for people who want to borrow a lump sum amount and reap long-term rewards.

2. Home equity lines of credit, on the other hand, are more suitable for those focusing on the short-term.

3. When considering home equity loans as means to consolidate debt, pan on the long-term effects.

4. Consider your financial situation before applying for any type of home equity loan, and weigh down all the pros and cons.

5. Compare interest rates, fees, repayment conditions, loan amount, and additional costs between several lenders.

6. Read all the fine print

7. Do not accept offer for a credit card to access your credit line, which makes using your loan too easy.

8. Set up a systematic repayment schedule, and remember that itís best to pay more than the minimum required.


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