The Advantages and Disadvantages of Home Equity Loans:
Advantages:
Disadvantages:
- Interest on home equity loans are generally tax deductible up to $100,000
- Banks love this type of loan because it is secured by the borrower's home
- Home equity loans can have much lower interest rates than credit cards or unsecured personal loans
- The money from this type of loan can be used for a variety of uses: paying off debts, buying a new car, medical costs, college education
- Home equity loans stimulate the economy because the money is circulated back into the market
- Can be used to improve your credit rating by paying off other debts
- Usually takes less time to obtain than your original mortgage (2 weeks versus a month or more)
Disadvantages:
- You can lose your home if you default on your payments
- Home equity loans can be risky for young homeowners whose jobs are not as secure or established as older borrowers, and who have less experience owning a home and managing money
- They can also be risky for older borrowers who may be tapping into their retirement fund
- The interest rate on an adjustable-rate home equity loan can increase dramatically during an adjustment period
- 125 percent home equity loans are not totally tax deductible
- Under certain circumstances, lenders can freeze a borrower's line of credit, or demand full payment of the loan
- You may not be able to lease your home during the term of the loan
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