Home Equity Loan Advisor

Even in these difficult financial times it is still possible to get a home equity loan or home equity line of credit to help with debt consolidation, pay for a college education, home improvements or other expenses. At Home Equity Loan Advisor we’ll walk you through the process of how to get a home equity loan and help you avoid some common pitfalls.

However, it’s important to consider home equity loan pros and cons before taking on this type of debt.

Home equity debt comes in two flavors: a loan and a home equity line of credit, also known by the acronym HELOC. Home equity loans pay you a lump sum, usually at a fixed interest rate. A HELOC is a loan amount that you can choose to draw down when you need it. If you use the funds from a HELOC you pay interest, usually at a variable rate. If you don’t access the HELOC funds you may nothing, other than an annual fee.

Home Equity Loan Pros

One big advantage of home equity loans is that they are a ready source of cash and are relatively easy to get, assuming you have the equity available in your home. You can use the loan amount however you wish.

In many cases the interest paid on such debt is tax deductible. The tax-deductible portion of the loan is based on a percentage, so those with higher incomes may not see a big tax advantage.

These types of loans often come with very attractive interest rates, especially when compared to credit cards.

Home Equity Loan Cons

One of the biggest disadvantages of home equity loans is that they are a second mortgage on your house, so if you cannot repay the debt you could risk the bank foreclosing on your home. This is an especially big risk for people changing careers.

If the value of your home drops, when it comes time to sell you may not have enough to cover the outstanding balance of your mortgage plus your home equity loan. In this case you would have to pay any outstanding debt out of your own pocket, which could be in the thousands of dollars and could cause a major financial hardship.

For many people, having a lump sum available to spend is a big temptation. You have to be disciplined about how you spend the money available to you. If you’re not going to use the funds made available from a home equity loan on things that increase your wealth or our house’s value, such as home improvements, you should stay away from such debt.

Finally, beware of the variable interest rate usually associated with HELOCs. If interest rates shoot up, your monthly repayment costs will increase as well. If you can’t afford the increased payment amount, you could be putting your home at risk.

Now that you understand home equity loans pros and cons, explore the other sections of this website for more answers to commonly asked questions.