Home Equity Loan Education

When you take out a home equity line of credit, you pay for many of the same expenses as when you financed your original mortgage. These include items such as application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow). These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line.

The equity you've built up in your home since the time of purchase, provides a viable alternative to other types of loans for those with good credit, who are considered financially stable. While you may be eligible to borrow up to 85% of a home's assessed value, less any outstanding amount on a first mortgage, you also need to become familiar with the terms before entering this kind of agreement.

If you qualify, you can borrow a maximum amount equal to 50, 60, or even 80 percent of your home's equity value, minus the amount of your outstanding mortgage. Because it works like a renewable line of credit, you have complete freedom of choice when it comes to borrowing with your home equity line of credit.

No one home equity loan is right for every homeowner. The challenge, then, is to contact different lenders, compare options, and select the home equity credit line best tailored to your needs. Be sure to review the home equity contract carefully before you sign it. Watch out for: Loan padding; Balloon payments; Third parties; and Loan flips. Avoid getting scammed.

The equity in your home is one of your most valuable financial assets. While a home equity loan is a great resource, it does carry risk. Failure to repay the loan could actually mean the loss of your residence. Make sure that you honestly answer these questions before getting one. Do I really need a home equity loan? Will I be able to repay the loan? Will I be able to keep my other debt down?