Considering a Home Equity Loan? Review these Details First

Do you have equity in your home? Would you like to get your hands on some of this money for a home improvement project or another expense? If you answered yes to both questions, a home equity loan is something to consider.

While there are many benefits of such a loan, including the ability to obtain cash in a relatively short period of time, it is important to understand the potential drawbacks. These include the following:

1. The cost. It is important to consider any and all costs associated with a home equity loan. This includes everything from closing costs to miscellaneous fees. On top of this, you should expect to pay interest on your loan (there is no way around this). While rates are typically lower than unsecured debt, such as a credit card, it is safe to say you will be paying interest along the way.

2. Early payoff penalty. Before you sign on the dotted line, discuss this detail with your lender. If you decide to payoff the loan early, regardless of the reason, will you be hit with an early payoff penalty? If so, you may want to think twice about what you are doing.

3. Your house is at risk. You have no reason to believe you will miss payments and fall behind, but you never know what the future holds. A home equity loan is a lien on your property. For this reason, you are taking a big risk.

These are the types of details to consider before applying for a home equity loan. You can’t deny the benefits, but at the same time you should become familiar with the potential drawbacks. This will help you make a confident decision that you can live with into the future.