Is a Home Equity Loan Right for You?
Before you borrow funds on your home’s equity, think which means you don’t finish up paying more than you expected.
According to the Federal Trade Commission, homeowners-particularly elderly, minority and those with low incomes or poor credit should be cautious when borrowing money based on their home Equity.
Certain abusive or exploitative lenders target these borrowers, who unwittingly may be placing their home on the line. Abusive lending practices range from Equity stripping and loan flipping to hiding loan conditions and packing financing with extra charges.
When not to agree to a home Equity loan:
- If you don’t have enough income to help make the monthly payments.
- If the loan conditions are incredibly unfavorable for you, with enormous up-front costs and high rates of interest (sometimes exceeding 50 percent).
- If there are discrepancies between your promised or mentioned interest rate and the annual percentage rate (APR) shape required in all consumer loan contracts (Truth in Financing). If that figure is significantly higher than the rate stated in the contract, the loan includes concealed interest charges.
- If you can’t determine who the lending company is. A lender could be only a few individuals in for an instant score. Does the agent have an office? Is the company an old and founded one with community ties?
- If you haven’t read or if you don’t understand the loan terms or you’re being pressured into putting your signature on the loan record.
- If the loan includes extra products you don’t want.
How to Proceed Before You Agree to a Home Equity Loan
Have a financial adviser such as an lawyer or accountant review all papers before signing anything. Paperwork for financing contract is often specialized and unclear.
Read all items carefully. If you need an explanation of any terms or conditions, talk to someone you can trust, such as a knowledgeable relative or an attorney. Keep careful information of what you’ve paid, including billing claims and cancelled inspections. Consider all the costs of funding before you consent to a loan.