Good aspects of home equity loans
• In most cases, borrowers can deduct the
interest on loans up to $100,000 on their taxes.
• For banks, it is the least risky type
of loan because it is secured by the borrower's
home.
• It carries a much lower interest rate
than credit cards and unsecured personal loans.
• It can be used for a wide range of things
-- from paying for debts, home improvements, tuition,
medical costs, cars, boats or a vacation.
• It can provide ready access to money in
emergencies.
• Home equity loans stimulate the economy
because consumers recirculate the money back into
the market.
• If used wisely, the loan can brighten
your overall financial status and improve your
credit rating.
• Obtaining a second mortgage (home equity
loan) takes about two weeks at the most, half
as long as qualifying for the first one.
The bad aspects of home equity loans
• If you default, you could lose your home,
your biggest asset.
• Such loans can be a risky spending tool
for younger homeowners who are not established
in their careers and have less experience owning
a home and managing money; and for older lenders
who would be tapping their nest egg close to retirement.
• Unlike fixed-rate home equity payments,
monthly payments on variable-rate equity loans
can go up substantially during high inflation
-- but your income may stay the same.
• High loan-to-value home equity loans may
not be totally tax-deductible.
• The value of your home can fall over time,
thereby lowering your equity.
• Buried deep in federal regulations are
provisions that allow lenders to reduce or freeze
a borrower's credit line, or call for full payment
of the loan, under certain circumstances.
• Using an equity loan to pay off debt may
make monthly payments cheaper but could cost you
more in the long haul.
• You may not be able to lease your home
during the term of your loan.
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