A home equity loan is a great way to use your house as collateral to obtain some cash which can be used for other purposes. For example you can use the extra cash to settle other urgent loans, debt consolidation or even home improvement.
However, before obtaining a home equity loan, you do need to consider carefully. Since you are pledging your house as mortgage, the lender has a lien on your house and if you do not pay the home equity loan, you could lose your house to the lender. So make sure your monthly income is sufficient to pay the monthly loan payments.
You also need to be wary of various home equity loan scams out there. There are some lenders who prey upon homeowners in need of cash. These homeowners are desperate and can easily fall into the trap.
Typically, the scam will allow the homeowner who has bad credit to obtain a home equity loan that has outrageous interest rates in the later years. The interest rates for the first few years are still acceptable and comparable to standard market rates. Since the homeowner will find it more and more difficult to pay the monthly payments as it gets increasing higher each month.
These lenders tend to prey on homeowners who are old or have low income. They do not have the financial literacy to understand what they are getting into and most financial institutions have rejected their loan application.
The end result is the homeowner defaults on the monthly payments because they have difficulty paying and ended up losing their home.
To prevent yourself from such scams, do not be tempted by lenders who offers you a home equity loan especially from lenders who are from dubious companies. Always choose established and trusted mortgage companies or financial institutions.
If you have bad credit, work on improving your credit first before taking out a home equity loan. There will still be lenders who are willing to offer you a loan but the interest rates will be considerably higher and you end up paying more in the long run.
Once you have improve your credit, it becomes noticeably easier to get approved for a home equity loan and the interest rates are also lower.