Pros and Cons of Home Equity Loans

Home equity loans are of the most popular home loans. It is a second mortgage loan which has the benefits of secured loans. Owing to this, it has led to many people opting for home equity loan.

Advantages of Home Equity Loans

The pros of the home equity loans comprise of the benefits that a borrower gets from the home equity loan which are greater than any other form of secured and unsecured loans as there is no risk involved for the lenders. It offers the maximum amount in proportion to the value of the equity. If the house is located in a prime area where the real estate is booming, the house can get appraisal of as much as even 125%. However, in most cases, a house gets at least 80% appraisal.

Home Equity Loans involve very low interest rates which, in most cases, are fixed. There is also tax deduction among the benefits. If the amount taken as home equity loan is less than $100,000, it is exempted from tax payment. This enables people to take the money out for various kinds of emergency or expenditures like debt consolidation, loan of medical expenses, refurbishing of the house or higher education.

In terms of repayment schedule, the timeframe can be selected anywhere between 10 to 30 years. Another important advantage is that the processing for the home equity loan is very easy and much faster with online services.

Disadvantages of Home Equity Loans

Though home equity loans have many advantages, they have pitfalls that you need to be aware of. A disadvantage of home equity loans is that there are the chances of you losing your house if you are not careful and default on payments. The lender can foreclose on the property so it is important that you do not take out a huge amount as a home equity loan. It is also not feasible for people who have just started a career or who are starting to use their pension. Also, if you opt for a longer repayment schedule, the interest rate is much higher. Apart from this, if the value of your house goes down and you want to sell it, you will face a huge loss.

Home Equity Scams

There are various ways through which scammers can cheat you and you might end up losing your house. Thus, it is very important that you do adequate research prior to choosing the lender. The home equity loans have some fees added to the total loan amount leading to higher interest rate and you paying much more than required. These charges are usually the home appraisal fee, property application fee, title fee and several taxes related to your mortgage.