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Home Equity Loan: What You Should Know
By Bill Darken
Many people are talking about a home loan, at work, weekends and even at the dinner table. Why is it the flavor of the month and what should you know about a home loan to ensure you stay out of strife if you decide to enter this realm.
Owning your home is a valuable asset for anyone in a lifetime. If you agree to a home loan, you are in fact putting this great asset at risk. Home loans are appealing due to the low interest rates and (in some cases) the tax deductibility of interest, but they also represent a risky business.
It sometimes has to be faced, if things don’t work out. Consider a significant expense and not to having the necessary cash to cover it. Examples of such expenses are medical bills, major house repairs or a child’s college education. A home loan could be the solution to your financial problems, at least for a short term. By using the you’ve built in your home over time you can borrow a significant amount of money. You have to repay the amount borrowed plus a (usually) low interest over a fixed period of time. If you fail to do this, you may lose your house.
Usually, in order to pay off the entire loan until the fixed time, you are required to make equal monthly payments. The lenders are obliged to disclose all important facts of their home plan, all terms and costs, such as the APR, different charges, and payment terms. After you have received this information, lenders do not normally charge any other fee that has not been specified in the plan. When you take on a home loan, you have normally had a few days from the day the account was opened to cancel it.
There are some basic although important things you should consider when you’re considering a home loan, in order to avoid a life changing mistake sometimes.
Firstly, if you have money problems, you must consider other options too, before using the in your home. Talk to your creditors or contact a budget counseling organization. A plan that would consolidate or reduce your payments might be enough to get you out-of-trouble. Also ask the opinion of someone other than the lender offering the home loan. someone you trust and who is reasonably knowledgeable.
If you decide a home loan is what you want, you should research
the offers of several lenders, including banks or a credit union.
There are many lenders who make use of abusive lending practices and you must be aware of these practices if you want to minimize your risks. Here are some scenarios of such practices.
• Equity stripping. You have built up in your home but you don’t have much income coming each month and you need money. A lender encourages you to make a home loan, even if you explain that your income is not enough to keep up with it. Of course, the lender doesn’t care if you are not able to pay, he has nothing to lose, on the contrary, he wins a lot. If you are not cerebral enough to get a realistic view of things and let yourself be easily persuaded you will probably lose your home.
• The balloon payment. You’ve already made a home loan and, fail to pay the mortgages and you’re very close to losing your home. Another lender offers to save you by refinancing and lowering your monthly payment. You have to be very attentive regarding the loan terms. The reason why the payments are lower may be that he asks you to repay only the interest rate each month. At the end of the term, you may find you still have to pay the entire amount that you borrowed. This sum is called a balloon payment.
• The home improvement loan. A contractor offers to remodel your kitchen, or install a new roof at a low price. You explain you can’t afford this, but he offers to arrange finance through a lender he knows. You agree and he begins work. At some point, you are being asked to sign a lot of papers without having enough time to read them and you sign them. Later, you realize you’ve signed a home loan, and even one with aberrant terms and interest rates.
By using the in your home, you can benefit by receiving a significant fixed amount of money, repayable over a fixed period, available for any kind of use and at a low interest rate. You may also be allowed to deduct the interest, under the tax law. At a first glance, the home loan sounds appealing. But, on the other hand, if you fail to repay, for one reason or another, you may lose your home. Bottom line is that a home loan is a good thing if managed and used carefully. If you are considering a home loan, you should carefully balance costs vs. benefits, before charging ahead.
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