Are your kids dreaming of spending a summer afternoon lazing in the welcoming shade of the new verandah or are they pestering you for a swimming pool? Don’t get stressed out, as you can find solutions to all these requests through a home equity loan.
Home equity loans are the most popular loans amongst the homeowners. But before you use your home equity, you must always remember that these are business dealings. Individuals generally commit errors while acquiring home equity loans and those common seven home equity loan errors are as follows
• Selection of an inappropriate loan- home equity loans are generally second mortgages in which the borrowers receive a fixed amount of money against home collateral. Home equity lines of credit work on the same principal as the credit card where the lenders decide on the maximum amount a borrower can borrow. You can tap into the available fixed amount of credit by writing a check or by swiping your debit card but by doing this, you may not know how much you may have to pay and for how long.
• No extra credit- Even if you don’t make any payments, HELOC funds consider the amount as your offered credit. So the more you borrow the more you may land up into trouble.
• Neglecting the repayment penalties- You must have heard this before, while you pay a lump sum as your prepayment, you are usually charged a penalty. So request for a home equity loan that does not carry any prepayment penalty.
• Passing over the Good Faith estimate- Some home equity loan lenders provide “good faith estimate” to point out the closing costs. So read and understand it well and if you face any doubts then you should always discuss those points with the lender before accepting a home equity loan.
• Deducing that the interest would be fully deductible-If you are intending to deduct your interest from your equity loan then you should list your deductions and borrow lesser amount.
• Accepting the first offer- Don’t jump and opt for the first available quote just because it’s offered by some of your banker friends. You should obtain various quotes, compare, and select the best offer that matches your needs and you will be surprised at the offers some lenders can give.
• Uncertainty of the life cap- HELOC’s have a life cap and maximum potential to increase the interest rate during the active period of your loan. The interest rate can sometimes rise to over 18 percent so don’t agree and sign in with a HELOC until you can cope with payments.
Home equity loans are not risk free, so do your homework well before signing in and ask various questions to the lenders with regards and satisfy all your doubts. Don’t forget that you are pledging your most important property against the loan. In case of default, you may lose your home. So be careful and avoid these seven home equity loan errors or someone else could be splashing in your dream swimming pool!
Phoebe loves shoes and all things bright and beautiful. Her opinion is often bias towards girl power oriented issue but when confronted with matter that matters Phoebe will always have her point noted. Topics of interest include fashion, finance, money, pets, health and current issue.