If you need to take out a loan, home equity lines are an easy source for credit. In the beginning a home equity line can provide lots of cash at fairly low rates and even give you tax deductions you can’t get with other loans.
On the other hand, a home equity line of credit will use your home as collateral. This could place your home at risk if you are unable to keep up on your monthly payments. Some loans require a large balloon payment when the loan term ends that may force you to borrow more in order to pay the loan. When this happens you may not qualify for refinancing which would force the sale of your home. In a soft market where you cannot sell your home you could lose everything to foreclosure. When you do decide to sell your home many lenders require that you pay off the home equity line at that time. Another risk to consider is easy access to your money these loans offer; you may borrow more money from your home equity than you would otherwise, doing this forfeits the equity you have built up in your home.
Keep in mind there may be other options to get the money you need. One option is a second mortgage installment loan. These loans add additional mortgage to your home; however, second mortgages pay you a lump some rather than a series of cash advances. Home equity lines typically have you write checks on a line of credit. Another advantage to a second mortgage is they typically offer fixed interest rates and fixed monthly payment amounts. There may also be additonal avenues of borrowing that do not require your home for collateral. Credit cards and unsecured lines of credit may let you write checks like a home equity line. There are also other types of loans for specific purposes: student loans and car loans for example.
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