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Home Equity Loans

A home equity loan allows you the homeowner to borrow money by using your home as collateral.  If you don’t have good credit and want to borrow a large sum of money a home equity loan maybe attractive to you.  A home equity loan is a type of second mortgage and shouldn’t be confused with a home equity line of credit.

Lenders of home equity loans view these loans as safer because if you don’t pay, they will get your home.  If you default on your loan, you can’t take the home or hide it.  Additionally, most people don’t want to lose their home, so they will make it a priority to pay.

Many home equity loan borrowers use the money to consolidate high interest loans, remodel or renovate their home, pay for college education or use as down payment for a second home.

What are the advantages of a home equity loan?


Home equity loans are normally attractive to borrowers because:
  • Lower interest rates when compared to other loans.
  • Easier to quality for even if you have a poor credit history.
  • Payments for home equity loans maybe tax deductible.
  • Access to relatively large loans (depends on equity in home).
What are the disadvantages of a home equity loan?
  • The main disadvantage is that you can lose your home if you default on your loan.
  • Scammers may trap you with paying high fees or taking your home.
How do I find the best home equity loan?

You can save hundreds or even thousands of dollars with the best home equity loan.  It’s best that you shop around via a variety of sources (brokers, credit unions and banks).   Ensure you credit report is accurate and manage your credit score.  Ask around with your co-workers, family and friends.  Compare prices.

To limit your liability if you run into problems paying back the loan, consider purchasing an insurance polity to cover payments.  If you do buy insurance, make sure to pay monthly premiums and not up front if you decide to cancel.

 

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