Before anyone rushes into getting a home equity loan, there are several risks that they should be aware of so that they understand fully what they are getting themselves into.
First, know what the upfront costs are going to be. You need to make sure that you understand all the costs, which means if a cost ever seems outdated or suspicious, question your lender of its purpose and whether it is proper to have included in the costs.
Secondly, be aware that this is not a temporary bill that you will have to pay, it is going to be a long-term commitment. Take into consideration that this long-term commitment could keep you from obtaining some of your future financial goals, so weigh the pros and cons.
Be prepared if the home equity line of credit will require a balloon payment. This payment must be made in full by the date that the lender sets. If not, then you risk losing your home. So you must have the money or another option in order to make sure that you pay it.
When you do have a home equity line of credit, make sure that you do not abuse this money. Too many people find it so easy to just write a check and use the credit when they need it. However, the more you spend, the higher your monthly payments will be, so be sure to make a budget and stick to it.
Be aware of the high loan to value loans. Most lenders will allow you to borrow up to 80% of what your home is worth, which is a safe amount. However, when the lender allows up to 100% of the value of your home, you have to be careful given the uncertainty of the housing market in today's economy.