Before you rush to apply for a home equity loan, you’ll want to give serious consideration to how you intend to use the funds, since you are using your home as collateral. To assist you in making the right decision, here are some potential risks you will want to be aware of:

• Know your upfront costs. Many of the costs you’ll encounter when setting up a home equity loan are comparable to those when purchasing a home. Some may seem inflated while others may fall in line with your expectations. Never be afraid to question your lender about a fee you don’t understand.

• Getting a home loan is not temporary. While qualifying for the funds you need may be easy, taking on a long term payment could be detrimental to your financial goals. Replacing one debt with another may not be the best solution.

• Be prepared to make a balloon payment. Obtaining a low-interest rate home equity line of credit (HELOC) may require making a balloon payment at some point in time. Unless you decide to refinance, take out another loan, or sell your home before the payment is due, you may have to pay off the balance on your loan.

• Be careful not to overspend. Since a home equity line of credit acts like an open line of credit you may be tempted to use your access card or write a check each time you need an infusion of cash. Having easy access to your loan can cause your monthly payments to increase and reduce the amount of equity in your home. It is always best to stick with your goals and a repayment plan that works for you.

• Beware of high Loan-to-Value loans. Most financial institutions will let you borrow up to 80% of the Loan-to-Value (LTV) of your home less any outstanding [mortgage](http://mortgages.nationalrelocation.com} payments on your property. However, there may be times when lenders will offer 100% or more to attract your business. This can be dangerous because of the uncertainty of the housing market. Also, additional fees may put you over the limit, and you would end up borrowing more than what your home is actually worth. Always understand all parts of a loan before accepting it so you will not be unexpectedly charged with more fees.