Pitfalls Of A Home Equity Loan

Pitfalls Of A Home Equity Loan

 
 


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Pitfalls Of A Home Equity Loan



Home equity loans are an attractive borrowing tool for many people. After all, the interest is tax deductible, the rates are usually lower than those on other types of loans, and they're easy to obtain. But there can be a downside, and you should know what it is.

With a home equity loan or line of credit, you can borrow up to 80% of the equity in your home. For example, if your home is valued at $125,000 and your mortgage balance is $50,000, you could borrow up to $60,000 (80% of your $75,000 equity).

Home equity loans should not be used lightly. Keep in mind that you're putting your home up as collateral on the loan. If you fall behind on the payments, you could lose your home through foreclosure, where the lender takes ownership of the property and sells it in an attempt to recoup the money they lent you.

Many people refinance their mortgage or take out a home equity loan to take advantage of the equity in their home.

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