A Home Equity Loan can be structured in a number of different ways to fit your particular financial needs. With most home equity lenders offering home loans with variable percentage rates, low or no closing costs, and a variable repayment length, it's no wonder that many homeowners in need of money seek out home equity loans as a source of cash. However, the main thing to keep in mind is that your home is the collateral for this loan, so repaying the debt is of the utmost importance.
Although a home equity loan is a powerful financial cash source that allows you to borrow against a percentage of your home's value for just about anything that you need cash for including home improvements, debt consolidation, a new car purchase, funding an education or maybe even financing a wedding, before you sign, you should know the important guidelines for repaying the mortgage debt and avoid becoming overextended, and in greater debt.
Home Equity Loan Repayment Tips
The first home equity loan repayment tips is to borrow wisely. Just because you qualify to borrow up to 85% or more of the value of your home does not mean that you should. Really, you should only borrow what you need and can afford to pay back without being in a bind to do so. Setting limits, budgeting, and being conservatively safe with money is always good advice, and when your borrowing period ends, it's wise not to try to extend it under any circumstances.
Secondly, examine the interest rate that you'll be getting. Ask your mortgage lender to provide a comprehensive explanation of the terms of interest. Find out what the interest cap will be, if and when the rate will become variable, and if the initial rate is merely an introductory offer. Many borrowers get lulled into a false sense of security because they have been offered a great 'introductory' rate, without fully understanding the amount of interest they'll actually be paying once the 'real' interest kicks in on the home equity loan. These small details will always make a big difference.
Third, make sure that you know the repayment terms of your home equity loan. If you have a variable term home loan, chances are that your payments can and will change over time. You should receive an amortization schedule with your loan documents that will explain the terms.
Other home equity loan repayment tips include, being sure to find out if you have to make a balloon payment on your home equity loan or line of credit as you near the end of your payment schedule. A balloon payment is a large lump sum due on the final payment, and some homeowners are caught off-guard and scramble to gather the large lump sum, as they have been accustomed to making much smaller payments until then.
Another word of advice is to familiarize yourself with the 3 Day Cancellation Rule. By law, you always have a three day period after you sign the loan in which you can cancel, and if you're unsure about any portion of the deal, be sure to let your lender know in writing for a full refund of any closing costs involved.
Although we've tried to provide helpful tips to aid you in your home equity loan process, this information is merely designed to give you an idea of things to look for and should not be considered legal or financial advice. Make sure that you check with any potential mortgage lenders for their specific home equity loan details before you borrow.
by Bob Darron
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