|
Home Equity Loans - Friend Or Foe?
by: Max Hunter
Home equity loans are advertised on the airways, newspapers, magazines and
just about anywhere else a homeowner may see or hear the advertisement. Some
people feel that home equity loans are trouble waiting to happen. Others feel
that home equity loans are a key to opening a stronger financial picture and
better home.
There is no simple answer to this question. The truth of the matter is that
it will depend on you specifically. There are many financial advisors who
believe having equity built in your home is equivalent to keeping your money
under a mattress. The mattress, however, is non-liquid which means you cannot
necessarily get at the money as soon as you need it. They believe that keeping
money under a mattress results in your inability to make your money work for
you, though they do acknowledge the minimal risk in keeping your equity in such
a safe place.
These same advisors would have you consider taking out a home equity loan in
order to invest the income. If, for example, you can find a relatively safe
investment at a greater interest rate than you are paying on your loan than you
will have your money working for you. If, obviously, the interest rate you are
paying on your home equity loan is greater than the interest you are earning on
the money in the investment than it does not make financial sense.
Another time financial advisors would consider it smart business sense to
take out a home equity loan is to pay off higher interest rate loans and credit
cards. If your home equity loan is at 8% and you are paying off credit cards at
18% and other loans at 10% or more than clearly it makes economic sense to
consolidate your debt through a home equity loan. It is important, however, to
factor in closing costs in the decision making process. The closing costs may
eat up a great deal of the savings, if not all of it.
There is a risk, however, for some homeowners. For example, there are some
home equity loans that give you a checkbook. As you write checks the money is a
loan against the equity in your home. This may cause people to overextend
themselves unknowingly. Without a definitive plan in mind, a home owner with
this type of loan may use the funds for items that do not necessarily make the
best financial sense. They may exhaust all of the equity in their home and not
have the ability to use the funds for consolidating their debts or making
financial investments.
The personality of the home owner is key to making the right decision when it
comes to home equity loans. It is also a good idea to speak to a financial
professional in order to get a full understanding of your overall financial
goals prior to making this important decision.
The structure of the home equity loan is important to. Make sure you pay
careful attention to the interest rates and the closing costs. When applying for
the loan request a full breakdown of any and all costs associated with the loan.
Depending on how old your documentation is (title search, appraisal, etc) you
may save money by using them again for the home equity loan. A title search
needs to only be updated rather than started from scratch. If, however, a
considerable period of time has passed since you first received your home loan
than all documentation may have to be obtained from scratch.
It is also advisable to give your home loan officer a strong understanding of
what your intent is with the funds. If you want to pay off other debts you can
request that the bank prepares checks directly to the lenders you wish to pay
off. This will minimize any temptation to then use the funds for other purposes.
Some loan packages will require you to do precisely this.
As you enter the wonderful world of home equity loans it is important to have
a clear understanding of what you want and expect out of the loan. It is
important to do your homework and select the right loan package and understand
how it works and its costs and obligations, then you can decide if you wish to
home equity or not to home equity.
|
About The Author
Max Hunter is the author of many credit related articles. If you are
looking for help with Home Loans or any type of credit issue please
visit us at http://www.homeloanave.com.
|
|
Home 