Your home is a valuable asset. You can tell people know this home equity with a variety of advertising aggressively promoting home equity loans and home equity lines of credit. They recommend that you place the asset home to the office. But is it a good idea for you? And, if so, which one should you choose?
A home equity loan is a lump sum advances in the form of a second mortgage on your home. You borrow a certain amount for a certain period of time and pay back the balance with interest installments. You can know about business lines of credit from various web sources.
A home equity line of credit, on the other hand, is a lot like having another credit card. The lender agrees to lend a certain amount of money over a period of time agreed upon and the borrower can draw against this line of credit whenever they want.
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Both programs use the equity in your home as collateral. Therefore, since the loan is secured, you usually get a lower interest rate than credit cards. This is the main reason home equity loan is being touted as a great way to consolidate debt. Another benefit is that the interest paid on these loans can be deducted from federal and state taxes.
Sounds good, does not it? But, in many cases, losses could outweigh the advantages.
To begin with, take a chance on losing your home and use them as collateral, is a risky business. "Borrowers beware," said Federal Trade Commission. And they are certainly not for anyone who may have to move and sell their homes before the second mortgage is due.
But that's not how they're being advertised, especially on the internet. Unscrupulous lenders promote this package for fixed income elderly and for people with low income and poor credit ratings.