Home Equity Loans With Bad Credit
Home equity loans are extremely commonplace in most communities and with the rise of homeownership in America the last few decades more and more people are looking to home equity loans and or lines of credit to help purchase big ticket items or to help savvy borrowers save money over lending from typical credit cards. If you are thinking about applying for a home equity loan or line of credit, here are a few pros and cons that you should be aware of.
Advantages
Home equity loans and lines of credit allow you to borrow large amounts of money, much more than credit cards or personal loans, due to the fact that they are secured with your home as collateral. For many homeowners, a home equity loan can help them with large purchases such as a home addition, college costs for a child or a once in a lifetime vacation.
For the most part, the interest that you pay on a home equity loan or home equity line of credit is tax deductible – usually to 100K. However, you should always consult with your accountant for your specific situation.
Home equity loans or lines of credit usually have very attractive rates. You can usually find home equity loans that have lower rates than a typical credit card and most loans are very similar to a primary mortgage rate. For the right use, these loan products can save you a tremendous amount of money versus credit cards, car loans and personal loans.
Disadvantages
The primary disadvantage is that you are using your home as collateral. If you are unable to repay the loan, the bank may sell your home to recoup its losses. For most borrowers, the amount may be low and the risk low as well, however, you might want to think twice if your finances are not in good condition.
For older homeowners, you might be tapping into your nest egg for retirement, you may want to look at other options before borrowing against your home and thus extending payments 15 or 20 years.
While most homes rise in value over the years, there are times that a homes value can drop sharply. If your home value is decreased, you might owe more than your home is worth.
It should also be mentioned that while home equity loans have a fixed rate of interest, home equity credit lines usually use variable rates, which can rise suddenly in certain circumstances.
