Home Equity Loans

You will find most home equity loans come with variable interest rates (home equity loan rate), some come with attractive low introductory home equity loan rates, and a few come with fixed rates. You also may find most home equity loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. You can find loans with large balloon payments at the end of the home equity loan, and others with no balloons but with higher monthly payments.

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. Do not hesitate to ask questions about the terms and conditions of your financing. You should beware of possible abuses when considering a home equity loan. Because your home is on the line with this type of loan, unscrupulous lenders may use practices that can help you to default.

Watch out for:

Loan Padding - the lender allows you to add to your stated income in order to obtain a loan. The catch is, you don't have enough income to keep up with the payments. Though you may be desperate for money, don't allow yourself to be dazzled by this kind of loan which guarantees you'll lose. Also known as equity stripping.

Balloon Payments - this type of loan allows you to pay less in the beginning with bigger, 'balloon' payments down the line. It takes advantage of optimism that things are going to get better, and there will be more money coming in someday. While you may be able to keep up initially, eventually you will lose your home.

Third Parties - when you're in danger of foreclosure a third party may contact you, promising to help you find re-financing. As a temporary measure this person or organization asks you to sign over the deed. Once you do this, the third party is in control of your house and may borrow against it, keeping the money and leaving you in the lurch.

Loan Flips - someone contacts you to take advantage of 'great' refinancing rates. You refinance and pocket the money. Then the lender offers to refinance the home again so that you can 'pull' even more equity from your home. Over time these continuing refinances drive your interest higher and add excessive fees and charges.