What Are the Pros & Cons of a Home Equity Loan?
Deciding to obtain a home equity loan or line of credit is a significant financial decision, based on both CNN and Bank Rate. A home equity loan works just like a regular installment loan, while a credit line is similar to a revolving charge card. While a home equity loan might help ease financial burdens, borrowing from a property property may wind up getting more trouble than it’s really worth.
Credit Card Debt
Using a home equity loan to repay high-interest credit card debt may be a smart financial move, but only if you’re planning to quit using those cards once theyrsquo;re fully compensated, based on both CNN and Bank Rate. You could wind up using much more debt than you can comfortably handle. Remember that most credit card interest rates are at least 10 points higher than most home equity loans, so if you’re disciplined enough to cut up those cards, then you really can save yourself a lot of money with the loan proceeds in this manner. (References 1 and 2)
Home Improvements
Home improvements, if an expansion or replacing an air conditioner, can often arrive from home equity loans, notes CNN. Bank Rate also counsels homeowners to consider such a loan prior to putting their possessions on the market for sale. However, like any loan trade, you need to ensure you can manage monthly payments.
College Education
If you have a home and make a good income, you may not be qualified for government-issued student loans to send your kids to college, notes Bank Rate. If you would like to send your kid to a private college, then you might have to consider taking out a home equity loan to help protect his educational expenses. However, you should ensure that your child really is seriously interested in attending a good college and prepared to perform her part to pay at least some of the related costs. Finding a home equity loan to send your kid to a state college is generally not a smart financial move.
Losing Your House
Losing your home to foreclosure is a really real potential if you take out equity loans and lines of credit, warns CNN and Bank Rate. Finding any sort of home equity loan to curtail the fiscal struggles associated with unemployment or unanticipated medical events is also generally a bad idea; getting a home equity loan to relieve financial struggles can exacerbate them and limit your choices for safely getting from these debt like Chapter 7 bankruptcy.
