Pros and Cons of Home Equity Loans

If you are looking at borrowing a substantial amount of money, home equity loans may be something that you are considering. This is where you take out a loan with your home as collateral. There are a number of pros and cons to doing this, rather than taking out a personal loan, and you should consider them to make sure it is the right decision for you.

The main advantage is that you will be able to pay in set monthly installments, which will have been decided upon between you and your lender. This rate can be changed if you do find yourself running into financial trouble but you will be under the knowledge that the lender cannot simply change it on you.

You will also be able to fix the interest rate so it will not change as the market value changes. You will also be able to get a lower interest rate on home equity loans than you would be able to with an unsecured loan. This is simply because with collateral there, you are less likely to default on your loan payments.

You could look into whether your interest rates are also tax deductible. Many home equity loans will be like this, which is great with your tax return. You should check into the details for this and speak to your accountant about it.

If you want to look at taking out a new mortgage to buy a new home, you could combine your home equity loan into the payments. This will help you to keep all of the money that you owe consolidated and could also help with lowering the monthly repayments that you will need to make. You could also consider adding the home equity loans into a refinanced mortgage too.

However, there are some disadvantages to taking home equity loans rather than looking into unsecured loans. The first and most important is that fact that your home is at risk. The lenders are able to take your home from you if you struggle to make the payments. You should always stay on top of your finances and will need to make arrangements if you are struggling; they will be more understanding if you go to them straight away rather than burying your head in the sand.

If you find that you can pay the loan off earlier than you thought, you will need to pay fees. This I the same with any loan that you take out but the home equity loans tend to carry higher fees than anything else. It may make more sense to simply put the money into a savings account and continue to make your monthly repayments. However, there are some home equity loans that do not carry these closing fees so you will have to look into the details.

So, before you decide to sign for your home equity loans, you should consider the risks that you are putting yourself under and decide whether there is another option out there for you. Sometimes, the unsecured loans with the high interest are a better option.