Article : Truth About Home Equity Loans

If you are a home owner and you need money, you can consider home equity loans as a means of raising money. Your home will serve as collateral and you can use the funds you have invested in buying or improving your home, as equity.

Your home serves as the security against which home equity loans are given, but remember that it may have to be sold to pay off the debt, if you are not able to keep up with the monthly payments. If you need a large amount of money for medical expenses, college tuition for your kids, debt consolidation, home repairs or other necessary requirements, you can consider home equity loans.

You can opt for fixed rate mortgages or adjustable rate mortgages. These home loans are available either as a lump sum or as a revolving line of credit. One of the benefits of home equity loans is that the interest you pay is usually tax-deductible. The Federal Trade Commission (FTC) advises that your home may be your single most valuable asset and those who agree to take home loans based on the equity they have in their homes, may be putting their most important asset at risk.

Homeowners must be careful while taking home equity loans, because certain exploitative borrowers indulge in abusive practices like equity stripping, loan flipping, hiding loan terms and adding extra charges. The elderly, minorities and those with low incomes or poor credit, are most at risk and these exploitative lenders tend to target them. Lenders who indulge in equity stripping help home owners with a low income to take home equity loans that they may not be able to afford. Home owners who are unable to keep up with the monthly payments usually end up losing their homes.

Home owners who have fallen behind in their mortgage payments and are facing foreclosure may be approached by another lender. The lender will offer to save them from foreclosure by refinancing their mortgages and also offer lower monthly payments. Actually the monthly payments may be lower only because the borrower will only be paying interest every month, while the principal amount remains unchanged. The entire amount borrowed will be payable at the end of the loan term, in one lump sum, called a balloon payment. Borrowers, who cannot make the balloon payment or refinance the loan, may lose their homes.

Loan flipping involves refinancing existing mortgages to raise money. Home owners who do this to raise money may have to pay high points and fees, apart from prepayment penalties. Borrowers who refinance their home loans may have to pay a higher interest rate and accept a longer loan term. With each refinancing they may take on more debt and increase the risk of foreclosure. Unscrupulous lenders may try to trick borrowers into signing papers for credit insurance that they don’t need, or ask them to pay additional fees and costs. Others may ask borrowers to sign over their deeds, in return for saving them from foreclosure.

Never sign any document without reading it carefully or sign a document that has blank spaces meant to be filled in later. Never consider home equity loans, if your income is insufficient to meet the monthly payments. Don’t get lured by extra cash or lower monthly payments. Use your discretion to determine whether the loan you are considering is worth the money you will have to pay for it. Before signing up for home equity loans or signing away their deeds, home owners must consult trusted and knowledgeable family members and/or attorneys.

source : http://www.myloanexpert.com/news/truth-about-home-equity-loans.html