Home Equity Loans - Is it Right For Me?

People watch do-it-yourself shows on television and decide to take out a home equity loan to pay for that fabulous new kitchen. Or maybe it's a cruise to Alaska that they yearn for. What exactly IS home equity? And how can it pay for things you want? A home equity loan allows you to tap the difference between the market value of your property and what you owe on your mortgage. For example, if your home is worth $200,000 and your mortgage payoff number is $177,000 then you can get a loan against that potential value for $23,000.

The equity in your home is one of your most valuable financial assets. While a home equity loan is a great resource for letting you benefit from that asset, it does carry risks. Failure to repay the loan could actually mean the loss of your residence. So make sure that you honestly answer these questions before getting one.

• Do I really need a home equity loan?
• Will I be able to repay the loan?
• Will I be able to keep my other debt down?

People use these loans for many things including making home improvements, paying off debt, paying college tuitions, buying a car or taking a dream vacation. Some home equity loans can be tax-deductible, but double check with a tax expert to be sure.

Home Equity Loans may be structured in many ways:

• Variable interest rates, often quite low
• Attractive low introductory rates
• Fixed rates
• Large one-time up front fees
• Closing costs
• Continuing costs such as annual fees
• Large balloon payments at the end of the loan
• No balloons but with higher monthly payments

No one loan is right for every homeowner. You should contact several different lenders, compare options, and select the home equity credit loan best tailored to your needs. Be sure to review the home equity contract carefully before you sign it. Don't hesitate to ask questions about the terms and conditions of your financing.

To avoid an unsafe loan here are some tips:

• The lure of extra money or the chance to reduce monthly credit payments can be very costly in the long run. High interest rates and other credit costs could get you in over your head.
• Credit insurance may not be a good deal. If you want the added security of credit insurance, shop around.
• Don?t sign a loan agreement if the terms are not what you were given when you applied.
• Ask for an explanation of any dollar amount, term, or condition that you don?t understand. Federal law is very clear about what credit and loan term information must be provided in writing when you apply for a loan and before you sign any agreement.

We can't emphasize enough that you shop around for the best loan terms and interest rates. It's easy to use free quote services online without even picking up the phone. Contact lending institutions, such as banks and credit unions, and talk with your legal or financial advisor before you make any loan decisions.