Considering an Equity Home Loan?
An equity home loan is a good way to finance a variety of things. These projects can be as large as garages and additions to as small as re-doing a kitchen or bath. In many instances, a equity home loan can be used for non-house-related expenses as well. In some cases, parents might get an equity loan to help finance a child's education.
An equity loan is based on the market value of your home minus what you owe on the mortgage--that's your "equity" in the home. In the past, when the real estate market was soaring, many people took advantage of the spike in their home's value. Unfortunately, many of these types of loans contributed to the meltdown of the real estate market.
There were several factors that led to this crisis. One is the decision by homeowners to opt for variable rate equity loans. These loans started with low teaser rates and then skyrocketed to very high rates. The clincher is that these rates were fully disclosed at the loan inception, so there wasn't much for homeowners to complain about.
Another factor is that home values tumbled. The real estate market took a nosedive and people found that their homes were not worth what they owed on them. This, in addition to a significant loan payment, has created a lot of foreclosures.
There are a few ways that you can avoid these pitfalls.
Firstly, take stock in your financial health. Figure out what you can really afford in a home equity loan. Consider things like job security, savings, and your ability to take on another bill.
Secondly, research your loan options thoroughly. Make sure you read the fine print in terms of various fees, fixed or variable interest rates, and the duration of the loan.
Thirdly, consider the value of your home, as well as how long you plan on living in it. Do some research in your neighborhood to see what homes are actually selling for, not what people are asking for them. This will give you an idea of what you could potentially sell your home for. Don't borrow more money than your house is worth. Once you apply for a equity home loan, the bank will order an official appraisal of your home to determine the market value.
Finally, figure out how long you plan on living in the house. Is an equity loan going to make sense for your life plan? This is a personal decision that needs to be considered before getting the loan.
An equity loan is one of many options available to homeowners, but as with everything in life they have both pros and cons. It is critical that homeowners take responsibility for their finances, and the best way to do this is through research and being an informed consumer.
Home improvement loans are another type of home loan.
Click here to learn more about this type of loan.
