Sunday, October 7, 2007

Shopping For A Home Equity Loan? 6 Secrets To Making A Smart Decision

If you’re shopping for a home equity loan, congratulations! You’ve invested in a home, and now you are looking to enjoy one of its many benefits: the power to borrow on affordable terms, with likely tax advantages (consult your tax advisor). However, because home equity loans are so popular, everyone and their brother now offers them. To avoid a costly mistake, it is helpful to know how to select from the crowded field of home equity lenders.


6 secrets to home equity loan shopping:

1. Shop for a home equity lender, not just a loan. The trustworthiness of the lender will likely determine the quality of the home equity loan you end up with. Ideally, get a recommendation from friends or family. Or, consider a large company with a good reputation to protect.

2. Don’t guess at your home’s equity—estimate it, using the tools available to you. Click on Home equity: How to know what you have for the 4 steps to follow.

3. Be clear on what you want to accomplish with your home equity loan. There are many smart reasons to get a home equity loan. The most popular are:

  • Consolidating high-cost debt to ease budget pressures

  • Borrowing to make home repairs or improvements

  • Financing a college education

  • Repayment of medical expenses or other unexpected bills

  • Capitalizing on a business or real estate investment opportunity

It’s likely you already have one of these goals in mind. But consider the others; you may be able to kill two birds with one home equity loan.

4. Ask for a home equity loan consultation, not just a loan application. Think you’ve found the right home equity lender? Before you apply—incurring possible fees and a hit on your credit report—let their representative provide potential options. Chances are, the deeper they probe and more consultative they are, the better your decisions are likely to be.

5. Run the numbers and compare home equity loan options. (Or, have your lender run the numbers; that’s a part of their job!). Be sure you’ve considered all the ways to borrow against home equity:

  • Refinance home equity loans (also called cash out refinance)

  • Home equity lines of credit

  • Closed-end home equity loans

6. Don’t overdo it. A home equity loan can be one of the wisest ways to borrow. But, like all good things, it’s possible to overdo it. For example, don’t:

  • Use a home equity loan to bail yourself out of debt caused by over-spending…and then continue to over-spend.

  • Deplete your home equity over and over, leaving yourself without assets to handle true emergencies or lowering your standard of living at retirement

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