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Home Equity
Loans
A home equity loan or credit can be a great way to borrow money at a lower interest rate. Instead of taking out a high interest credit card, you can use the equity in your home to borrow the money you need, often with much more favorable terms than you could get from a credit card. However as with all things, home equity loans and lines of credit have distinct advantages and disadvantages. It is imperative to be aware of all the facts before taking out a loan on your home.
There are two different types of home equity loans, a closed-end loan and a line of credit. A closed-end loan is similar to the mortgage you may already have in that it has a fixed overall rate that does not fluctuate. This is often referred to as a second mortgage; the line of credit varies in that it is more similar to that of a credit card. A home equity line of credit typically gives you between five and twenty years to access the funds. After this period is over, the homeowner must stop borrowing and repay the principal and interest on the loan. A line of credit can have a variable interest rate which fluctuates with the market.
One of the primary advantages of home equity loans is that interest paid is tax deductible up to $100,000 or the equity in your home, whichever amount is less. In addition, a home equity loan offers very flexible terms. You can choose how much to borrow and when you would like to repay it. Home equity loans typically offer very low interest rates in comparison to what you can receive from a credit card company or traditional consumer loan.
The disadvantages of a Home equity line of credit can be major, the most serious of which include the risk of losing your home. This loan is essentially placing your home as collateral in exchange for a credit funding and oftentimes foreclosure proceedings can begin as soon as 60 days after a late or missed payment. The other disadvantage is that taking out multiple home equity loans, can result in owing more on the home than its original purchase price. This can leave the home owner in a worse situation than before taking out the loan. Another disadvantage to taking out a home equity line of credit is the possibility of rising interest fees. Unless you sign up for a closed-end loan, your fees can fluctuate with the market and could potentially raise your payment to unmanageable levels. The final downside to home equity loans is the amount of fees involved. The fees can range and include withdrawal fees, application fees and origination fees.
Before embarking on the process of taking out a loan on your home, research the rates offered by various companies. You want to make sure that you are getting the best rate and the lowest fees. In addition, assess how much money you can borrow and repay without hurting your finances. If you know you will be able to pay off the loan quickly, the low interest rates of a home equity loan may be just the thing for you.
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Debt Consolidation - Loans & Credit Card Bill - Debt Consolidation
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Friday, January 27, 2012
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