Home Equity Loans

Home ownership is a valuable thing to have, and one shouldn’t gamble with valuable things. However, gambling is exactly what you’ll be doing if you take on a home equity loan without carefully weighing your options.

Most homeowners take out a mortgage to pay for their home. As they pay off what they owe, they build up “home equity”—the percentage of their home they actually own.

A home equity loan is a loan that allows you to borrow money based on your home equity. Even if you have poor credit, a low income or can’t afford monthly payments on a particular loan, you can still apply for a home equity loan. However, these lenders don’t always have your best interest in mind.

Home equity loans put you at risk for equity stripping. The lender claims it’s not the end of the world if you can’t keep up with monthly payments. What he or she doesn’t mention is, it might be the end of your equity. As soon as you miss a payment, the home equity loan lender dips into the home equity you’ve spent years building up. Gradually, you lose more and more of your home. That’s why it’s so easy to get approved for a home equity loan no matter how low your income. The lender knows he or she will benefit in the end—by getting a piece, if not all, of your home equity in the long run.

It might be better to try for a personal loan, or even a loan from family or friends, before resorting to a home equity loan. A home equity loan is such a big risk that ALL other options should be considered first.

To avoid getting scammed into a home equity loan you can’t afford, only agree to a home equity loan if you have sufficient income to cover the monthly payments. Otherwise, seek other options.