Home Equity Loan Pros and Cons

You can get a home equity loan or second mortgage for paying off college tuition, financing home renovations or consolidating debts. You will be able to lower your monthly bills payments with the loan. All you have to do is to be careful with the usage of this loan.

Getting a loan for increasing the value of your house is a good idea. However, using the loan for refinancing your debts without a change in spending habits is dangerous. You’ll risk facing the same problem down the road and, the worst case, you might lose your home if you default on the loan.

Home Equity Loan Pros

Equity loans are among easy sources of cash. Their interest rates are lower than many types of personal loans, including of credit cards. If credit card debt consolidation is your main goal, these types of loans can lower your interest rates as well as monthly payments.

In addition to paying much less interest you can also save from interest expense tax deduction because these secured loans are tax-deductible. In many cases lenders won’t charge more costs, such as mortgage insurance and others fees incurred when you borrow your first mortgage loan.

With the loan, you can get a single, monthly payment with a lower interest and tax benefits for consolidating your credit card bills.

Home Equity Loan Cons

You can maximize the benefits of equity based loans if you use the money for investing or other added value purchases that help you accumulate wealth. But using the loan for consumptive spending will only worsen your financial situation.

Another use of the funds is paying off unexpected medical bills or credit card bills to get immediate relief to your financial troubles. At least it will temporarily offers you a break and a debt-free feeling. But it isn’t the solution for a perpetual cycle of spending, borrowing, spending and drowning deeper into debt.

Home equity based loans are among the risky borrowings. Because the loan is secured against your house, failure to repay the loan could mean the loss of your home.

When to Get a Loan On Your Home Equity?

Before taking out the loan find out why you want to borrow money and then weigh the pros and the cons of these types of loans. Once you get the best deal, set a schedule to repay the equity loan as soon as possible.

If you plan to get it for debt consolidation, remember that a home equity loan will only cure the symptom. Before you rack up the next round of credit card debt you have to change your spending habits.

Home Equity Loan Pros and Cons was last modified: April 12th, 2014 by Paul Sarwana