HOME EQUITY LOANS

Just like most anything in life, there are both good and bad aspects of home equity loans. If providing yourself with even a modicum of relief from the amount of debt you've accrued from other sources (such as credit cards, car loans, etc.), taking out a home equity loan might be a good choice.....MIGHT being the operative term. This is because many people often times seek relief from debt for the sole purpose of freeing up credit lines -- which, in turn, of course leads to even greater debt.

BASICS OF HOME EQUITY LOANS -- PROs and CONs

Here's a quick, but central question for you: what is a home equity loan? Throwing off any cloak of sophistry and speaking quite frankly, a home equity loan is simply a second mortgage. It is designed to use the collateral of your home to secure a loan.

The Pros...

Due to the fact that home equity loans are what is known as a secured loans, the interest rates are typically far less than those carried by most other types of loans.
Because a home equity loan is literally a second mortgage, the interest can be deducted from your taxes.
Not having to deal with collections agencies on a daily basis may provide the borrower with the psychological belief that they are on the road to financial recovery.

The Cons...

Just as it is possible to lose your home to foreclosure if you default on your primary mortgage, it too is possible to lose your home by defaulting on your home equity loan.
If you choose to borrow more than what your house is worth (which is referred to as negative equity), you must pay off this full amount if you should ever sell the property.
You will be forced to pay points and closing costs to get the home equity loan just as you had to pay out these ancillary fees with your original mortgage.

About the Author:

Chris Sparling is a graduate student and screenwriter. His upcoming film “An Uzi at the Alamo” is set for festival release in November of 2004.