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Home Equity Loans - Friend or Foe?
By Ethan 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
Ethan 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
Article Source: http://www.simplysearch4it.com/article/8468.html
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