Home Equity Tips

If you are looking for a loan that offers a large amount of credit (upon qualification) and low interest rates, think about applying for a home equity loan. Besides low interest rates and large principal balances, home equity loans may offer something just as valuable: a tax deduction. Depending on the state you're in and the tax laws in your jurisdiction, you may be eligible for a tax deduction on your home equity loan.

While they have similar characteristics, a home equity loan and a home equity line of credit (HELOC) differ in important ways. A HELOC is a revolving charge account and line of credit; a home equity loan is essentially a second mortgage with a lower interest rate and terms.

Home equity loans and home equity lines of credit offer many benefits to borrowers, but shop around before you settle on one provider. Consider the costs of a home equity loan against its good points and look for the plan that fits your budget and your financial state. Be aware that both a home equity loan and a home equity line of credit are secured loans, so you are putting your house up as collateral; if you default on the loan, your home will be forfeit. Generally, this doesn't happen unless you get seriously delinquent in your payments, and is also why you need to be sure you can afford the loan.

Here are some other tips to keep in mind when you're looking for a home equity loan:

  • Shop around for the right loan.
    Never go with the first quote; always get at least several and compare them.
  • Take advantage of the Federal Truth in Lending Act. Ensure the lender discloses everything.
    The lender is required by law to disclose all fees and costs associated with the loan, so read everything before you sign it. If they don't disclose a term to you, they are obligated to close the loan and return all fees to you.
  • Make sure you are financially fit before you apply for a home equity loan.
    This is imperative, as you're putting your house up as collateral, and if you default on your loan, the lender, via your agreement to their terms, has the right to take it.
  • Don't let someone convince you take the loan; make a careful choice.
    All salespeople can be pushy, but let this decision be one that you mull over, talk about with a financial advisor, and generally think about before going ahead with the application.
  • If you get a home equity line of credit, ask about renewable terms.
    Some home equity lines of credit allow borrowers to renew their credit line if they have an account in good standing at the end of the first term of the loan.
  • A home equity loan should be considered if you need a finite amount of money.
    If you need the money to do a home repair or for any other purpose that requires a certain amount, you may want to look into a home equity loan. A home equity lone of credit should be considered for anyone simply looking to have an extra credit line with lower interest rates and higher limits