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What you should know before getting a home equity loan

The equity in your home is defined as the difference between what your home is worth and the amount you owe on it. For most homeowners, this is their most valuable financial asset. A home equity loan can be a benefit to you, but it does carry risks. If you do not repay the loan, you could lose your residence. Before you get a home equity loan, ask yourself these questions:

• Do I need the money?
• Will I be able to repay it?
• Will I be able to resist increasing my other debt?

A homeowner can use a home equity loan for a variety of things including making home improvements, paying off other debts, taking a vacation, or buying a car. Some home equity loans are tax-deductible, but you should consult with a tax expert first.

Home equity loans come in a variety of flavors with options such as variable or fixed interest rates, large or small up front fees. Some loans have closing costs, continuing costs, and annual fees. Others have large balloon payments at the end of the loan, and others have higher monthly payments.

To find out if a loan is right for you, contact different lenders, compare options, and select the loan that fits your needs. Always review any contract carefully before you sign it and ask questions about the terms and conditions if they are not clear.

Here are some tips to remember to avoid pitfalls:

• Make sure the terms and conditions of the loan agreement you must sign are the same as the advertised terms.
• Ask the lender to explain any dollar amount, term, or condition that is not clearly stated in the contract.
• Be careful that the lure of extra money or the chance to reduce monthly credit payments will not be very costly in the long run. Compare interest rates and all other credit costs before taking out this loan.
• Credit insurance may not be a good deal from a lender. If you want the added security of credit insurance, shop around.
• Spend time comparing various lenders’ loan terms and interest rates. Consult with someone that is both knowledgeable about finances and trustworthy before you make any loan decisions.
 
 

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