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Home Equity Loan Comparison Chart
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| Star Reviews home equity loan reviews enable you to easily compare the best home equity loans. Read in-depth reviews of the home equity loans which we think stand out from the crowd. |
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Consumer's Guide To Home Equity Loans
Home equity is the net monetary value of any residential property after all loans, liens and claims are deducted from the fair market value of the home. Home equity is built up over time as a homeowner pays down their mortgage. It is the difference between what the house is worth and what is owed towards it. Taking out a home equity loan can open up a lot of doors, but homeowners should always be aware of the possible consequences.
Home equity loans allow you to borrow money using the value of your home as collateral. If you can't make the monthly payments or you get stuck with a bad lender, you can be at risk of losing your home. That's why it is so important to learn about home equity loans before choosing a lender.
Types and Purposes of Home Equity Loans
If you need a substantial amount of money in one lump sum and you've owned your home for many years, a home equity loan might be a good option; however, you should only apply for a home equity loan if you can make the minimum monthly payments. Home equity loans are usually for large amounts of money due over a shorter period of time than a typical mortgage. This type of loan is often used to refinance major expenses such as home improvement, medical or secondary education expenses.
The other type of home equity loan is a home equity line of credit (HELOC). A home equity line of credit is more like a credit card; you have open access to the funds up to your credit limit (in the case of HELOCs, the limit is up to or under the amount of equity in your home) if you need it in a pinch but line of credit isnít taken out in one lump sum like a regular home equity loan. The downside of a HELOC is that your home is the collateral: if you fail to pay off the credit you dip into, the lender doesnít simply send your information to a collections company as in the case of a credit card issuer; they can put a property lien on your home.
Finding the Best Home Equity Loan for You
There are a lot of home equity loan scams out there, so make sure you research all of your possible lenders before making any kind of commitment. You want to have all of the facts so you can make an informed decision. Your home is most likely your most valuable asset, so protect it by doing your research.
Finding the best home equity loan starts with your credit score. Get your full credit report and credit score before you start applying for a home equity loan so you can be sure you're getting a fair deal. The higher your credit score, the lower the interest rate should be. Lenders usually classify a good credit score as anything over 700, though other factors do come into play. You should also find out what the national average interest rate is so you can compare your rate against the average and negotiate the best possible rate.
Home Equity Loan Red Flags
Home equity can be used to consolidate credit card debt. According to the Federal Crisis Inquiry Commission (FCIC) this is never advisable. It's better to owe money to a credit card company than a mortgage lender because the credit card company cannot foreclose on your home if you fail to make payments as a mortgage lender can with a home equity loan.
Both the Federal Trade Commission (FTC) and the FCIC advise to never take out a home equity loan if you don't have the income to make the monthly payments. If you come across a lender who encourages to you "pad" your income on your application so you are approved for the loan even though you know you can't afford the payments, run. Getting approved for a loan you can't afford is definitely not in your best interest. The best home equity loan lenders will be honest with you about how much the loan will cost and whether or not you can afford it.
Even if you've found a very reputable and trustworthy lender, you must always read every loan document before signing it. Watch out for language about credit insurance or any other added expenses that you did not discuss with the lender beforehand. With your home on the line, don't take any chances.
Exploring Other Loan Options
Home equity loans can be very beneficial if you are careful and find the right lender but there are other viable options available such as reverse mortgage.
Reverse mortgages can be paid in one lump sum, at specific times and in specific amounts of your choice, or as regular monthly payments. This type of loan does not have to be paid back for as long as you live in your home; the loan and interest are only repaid upon death, or once your house is sold or you move away permanently.
If you are under the age of 60, you're probably better off with a home equity loan. When looking for the best home equity loan for you, be sure to carefully consider your options and get all of the facts before making your decision.
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