The Bad Side Of Home Equity Loans

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Home equity loans are attractive to home owners because they can help them have more cash on hand. A fixed rate equity loan can reduce monthly payments, and an extended line of credit can help pay down high-interest credit cards or personal debt. Still, there are some dangers of home equity loans.

You might be promised lower interest rates or low monthly payments now, but if your credit score decreases, those promises can be broken. Homeowners who are not able to meet the demands of the change can put their house at risk of repossession if they cannot repay the debt in time. Debt consolidation or home refinancing isn’t that good of a choice if you will just end up with a bigger debt than you can pay.

Even when money is saved on the home equity loan or line of credit itself, some borrowers may end up overspending in other areas. When they have paid their credit cards, they will start buying things on credit again, and the monthly bills will just pile up. And what will happen when the estimated budget for the project exceeds the initial funding amount? Borrowers spend more money that they should.

Some mortgage companies might charge excessive fees that the homeowners don’t know about until they sign the final papers. This is becoming very common these days, so make sure you know all the terms and costs before you sign any papers. Other bad lender practices are: equity stripping, loan flipping, and over borrowing. Equity stripping is when a lender will inflate the income on an application to secure the loan. In the end, the borrower will not be able to pay back the amount. Loan flipping is when a lender increases the loan amount by increasing the current mortgage. This would result in an overextended amount, and the borrower might have difficulty paying it off. Over borrowing occurs when the loan that is given amounts to more than the home’s worth. The borrower will not receive a tax deduction on this, so he might have a really difficult time paying this off.

Although there are many advantages of a home equity loan, there are some dangers and pitfalls to look out for. For you to stay ahead of payments, have a budget and keep your spending at a minimum.

When you’re searching for sartell homes for sale, get the help you need including relocation, moving and financing options.

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Topics: Mortgages | Comments Off

Tags: banking, Credit, Debt Consolidation, Debt Relief, family, Finance, Finance and Credit, Finance and Loans, financial planning, home, Home and Family, Loans, loans and mortgage, Mortgages, Personal Finance

Article Citation
MLA Style Citation:
Woods, Frank "The Bad Side Of Home Equity Loans." The Bad Side Of Home Equity Loans. 3 Feb. 2012. uberarticles.com. 12 Apr 2012 <http://uberarticles.com/finance/mortgages/the-bad-side-of-home-equity-loans/>.

APA Style Citation:
Woods, F (2012, February 3). The Bad Side Of Home Equity Loans. Retrieved April 12, 2012, from http://uberarticles.com/finance/mortgages/the-bad-side-of-home-equity-loans/

Chicago Style Citation:
Woods, Frank "The Bad Side Of Home Equity Loans" uberarticles.com. http://uberarticles.com/finance/mortgages/the-bad-side-of-home-equity-loans/

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