Home Equity Loans - What's Right For You
You should always approach good deals with a skeptical eye. When it comes
to financial decisions, be downright cautious. After all, your hard-earned money,
your future, and your children's future are at stake. Take the time to gather
the facts and study your options.
I'm sure many of you have seen the ads touting how easy it is to consolidate
your Credit Card Debt by taking out a home-equity loan. Have a huge debt? No
problem, you can take out a loan for more than the value of your house, in fact
up to 125% of your home's value.
A home-equity loan is, in many situations, a smart way to borrow money. The
interest rate is usually lower, and the interest is tax deductible. In addition,
home-equity loans are amortized over approximately 15 years rather than about
4 years for credit cards. In other words, the monthly payment on a home-equity
loan is much lower than a required minimum credit card payment.
Danger lurks, however, with the temptation to borrow all of your home equity
to pay off your debts. A quick and easy solution to be sure and it's promoted
my many companies, but it leaves you with no reserve. A certain percentage of
people will end up in debt again, and then face the very real possibility of
losing their house.
Worse yet are the special programs offered by some companies where you borrow
past the value of your home. Typically, these loans are not considered tax deductible.
In fact, by law interest on any part of a loan that exceeds 100% of the value
of your home is not deductible. Also, lenders usually charge higher rates since
it is basically an unsecured loan. (Any Mortgage for up to but not exceeding
your home's actual value is considered secured by the home itself.) Plus, these
loans may have interest rates as high as seven or eight percentage points over
traditional mortgages. You could possibly end up shelling out double the money
for what you'd pay for a regular mortgage or home-equity loan.
The safest way to go would be to settle for a traditional home equity loan, stay
within your means, and most importantly, learn to research the facts and manage your money carefully.