Should I Finance A Car With A Home Equity Loan Planning to Take A Home Equity Loan? The Do’s and Don’ts Of It

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Planning to Take A Home Equity Loan? The Do’s and Don’ts Of It

Perhaps you want to finance big-ticket expenses like your children’s college education, you’re suddenly faced with large and unexpected medical bills, or you want to make major home improvements or repairs. A good way to come up with funds is to opt for a home equity loan. Depending on your credit history and the loan-to-value ratio of your property, you can get a safe and convenient loan against your home.

What is a home equity loan?

They are loans taken out using the borrower’s home equity or market value as collateral. Equity is calculated using the difference between the market value and the outstanding mortgage balance.

Home equity loans are making something of a comeback in the market recently after several lean years. For those with good credit-ratings, rates are lower than other forms of borrowing such as personal/auto loans or credit cards.

Risks

Home equity loans can be easy to get if you meet the eligibility criteria and make financial sense if you have equity, but there are several inherent risks:

• Variable or temporary interest rates – they can always rise in the future

• Too easy to spend – you can end up with “buyer’s remorse” by splurging on a bunch of unnecessary stuff.

• Full repayment – ​​If you are not financially conscious and keep a tight rein, you may find yourself in trouble at the end of the loan term.

• Loss of property – Defaults can result in foreclosure and you may lose your home itself

Hence exploiting the value of your home can be extremely risky if you take a home equity loan without a full understanding of the process and its implications.

Dos and don’ts

Protect yourself and your family by educating yourself properly before taking out a home equity loan. It can be a disaster waiting if you are not aware of the implications and consequences.

Here are some pointers to keep in mind:

do it

• Remember that this is still a form of mortgage

• Keep careful records of all payments and charges including billing statements, bank records, canceled checks etc. so that you can challenge inaccuracies with solid evidence.

• Read the loan agreement carefully

• Never engage unlicensed contractors to work on your home

• Use the loan amount to make real improvements to your home or whatever specific purpose you have taken the loan for.

• If you don’t have an emergency fund then the loan amount can be used to meet unexpected events/crisis.

• It can be used to build a nest-egg for retirement

• Check whether tax benefits or deductions are available

don’t do

• It’s tempting, but don’t use your home equity loan to splurge on a big TV, boat, car, cruise, vacations, etc.

• If you plan to sell your home soon, avoid taking a home equity loan

• Don’t take on an unnecessarily large loan – keep it realistic. If the market goes down you could be stuck with a large repayment situation

• Don’t be pressured by overwhelming marketing tactics – educate and inform yourself

• Consult your family before taking a loan

• Never sign documents that have blank spaces or that you do not fully understand and understand

• If necessary, have the documents checked by an expert

• Assess your repayment capacity and decide if you can really afford it

Today, interest rates are at a historic low and the economy is looking up. Many property owners are considering taking a home equity loan and this is a really great option if you have the credit-rating and eligibility. Also if you fully assess the risks and benefits too, approach a reliable, well established and reputed institution or organization and do your research properly.

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