How Do I Choose the Best Home Equity Loan?
The year 1986 was a huge one for home equity loans. The Tax Reform Act of the year altered the rules for interest tax deductions. Consumers may no longer deduct the interest they paid on their charge cards, but still could deduct–with some limitations–the interest they paid on home equity loans. Home equity loans are still tax-deductible. Add to that comparatively low interest rates as of 2010, and flexible repayment programs, and you can see why American homewoners enjoy home equity loans. This does not mean home equity loans don’t have their disadvatages–far from it. Home equity loans can carry expensive fees. If your loan has a variable rate of interest, your monthly loan payments may grow without warninng. And, more to the point, in case you fall behind in your payments, you can lose your house.
Choose what kind of home equity loan suits you best. There are 3 main types: fundamental home equity loans, also called secondary mortgages, home equity lines of credit and reverse mortgages.
Find out your credit score. This score is a score lenders use to ascertain how reliable you are as a borrower. The higher your score, the more leverage you’ll need to pay a better deal on your home equity loan. As stated by the National Credit Union Administration, a credit score of 700 or greater is considered excellent.
Shop around before Picking a loan. Collect the conditions and details of at least three loans. Assess the fees and details that will help you choose which is your best bargain. The Federal Citizen Information Center, listed in the Resources section, provides a free worksheet that will help you compare home equity loans.
Compute whether you can afford the monthly payments of the loan you choose. The U.S. Federal Trade Commission warns home equity borrowers from allowing the promise of extra cash blind their good judgment so that they take a loan they can’t afford or just is not worth the price.
Avoid lenders which are too pushy, try to add credit insurance or other products you are not interested in or ask you to deed your property over to him. The Federal Trade Commission warns about fraudulent creditors who may claim you need to hand over your home’s deed to avoid foreclosure, but use your deed to secure loans to their advantage, or perhaps sell the property without your approval.