Home equity loan is when a person gets a loan and puts the home as equity or as security for the loan. There’s really nothing wrong with getting a home equity loan. However, in worst case scenario, if the person, for whatever reason, fails to meet his obligation and therefore fails to pay off his loan, the home will be used to pay off the debt.
A home equity loan or HEL is a kind of loan where the borrower uses the equity of his home as collateral, security, or guarantee.
Basically, proceeds from Home Equity Loans or HEL are used to finance major repairs in the home. But there are also situations where people apply for a home equity loan with other purposes in mind. Proceeds of such loans are sometimes used to pay for medical bills. This is especially true when the medical bill is huge and there is no other source of money. There are also situations where parents get home equity loans to pay for their children’s college education. Used intelligently and wisely, a Home Equity Loan can be considered a very smart financial move since the interest rate is way much lower than credit card interest.
Home Equity Loan can also be very helpful especially if the amount borrowed is less than the fair market value of the home. In such scenario, a tax deduction is allowed, providing much needed help to homeowners.
Home Equity Loan is also packaged or positioned as a solution when a homeowner is heavily burdened with so many loans. Lenders push for debt consolidation through home equity loans in such situations.
Home Equity Loan is not bad per se. However, just like many things, once it is abused, it creates more problems than anticipated.
One common problem observed with homeowners who have gotten themselves a home equity loan is that with the huge sum of money on their hand, they begin to spend irresponsibly. Left unchecked and unmanaged for some time, most of these homeowners realize too late that they have spent their money too fast, too soon, and the consequences are dire. What happens next is very predictable: they begin to fall back on their obligations, failing to pay their debts, and ultimately, lose their homes.
What homeowners do not realize is the fact that not all lenders are good lenders. It is a given reality that there are many unscrupulous lenders who take advantage of unsuspecting homeowners by offering them “sugar-coated” loans which are in reality high-rate loans with excessive fees. These cunning lenders deceive gullible homeowners with their sales pitches by offering them too-good-to-be-true packages and schemes, or by offering them help as they process the loan application.
So if ever you’re thinking of getting a home equity loan, think hard first if the risks are really worth taking. Then always make an informed decision; do some research first and find the best deal that will be for your advantage.
Byline: Siena Lombardi has written this article on behalf of eDrugstore.MD. You can visit eDrugstore.MD for more information.
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