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Selecting a right home equity loan requires careful consideration.
Before taking this decision, remember your home is at risk, since you
are going to use it as collateral. If you fail to pay the loan, you
stand to forfeit your home, since bank can sell it to make good its
losses. So decide if the you are comfortable with the thought of using
your home as collateral, before going ahead with the decision.
The 2 major types of home equity debt are: home equity loans
and a home equity line of credit or Heloc. Both these categories use
your home as collateral. A home equity loan is nearly equivalent to
your primary mortgage, since it is a fixed interest loan. The interest
rate throughout the duration of the loan is constant, irrespective of
the number of years for which you have taken the loan.
On the other hand, a home equity line of credit has variable interest
rate. Its rates can change. Sometimes if you are fortunate, you can
get one with lower interest rates. However at times, these interest
rates can go up sharply, making the loan very expensive.
A home equity loan is meant for homeowners who need a big amount
for a single period. E.g. if you want money for your wedding expenses
or improving your home, then this is the type of loan you should go
for.
A home equity line of credit is just like a credit card, where
you can withdraw little amounts numerous times a year and repay them
immediately. The major benefit of a home equity line of credit is the
interest rates that are far below the normal credit cards, because your
home acts as collateral to the loan.
The other thing to consider is the likely fees that you will be charged
while borrowing or applying for a home equity loan. These fees should
also be the determining factor in your decision making. Also shop around
and do your homework properly. Don't grab the first available offer.
Normally home equity loans are very competitive and if you look around,
you will get a loan, perfectly matching your requirements.
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