Planning to Take A Home Equity Loan? The Do’s and Don’ts Of It

Planning to Take A Home Equity Loan? The Do’s and Don’ts Of It

Perhaps you want to finance big-ticket expenses like your children’s college education, you’re suddenly faced with large and unexpected medical bills, or you’d like to carry out major home-improvements or repairs. A great way of coming up with the funds is to opt for a home equity loan. Based on your credit history and loan-to-value ratio of your character, you could take out a safe and functional loan against your home.

What Are Home Equity Loans?

They are loans taken using the borrower’s home’s equity or market value as a collateral. Equity is calculated using the difference between the market-value and the noticeable mortgage balance.

Home equity loans have recently been making something of a reappearance after many lean years in the market. For those with a good credit-rating, the rates are lower than with other forms of borrowing like personal/auto loans or credit cards.


Home equity loans may be easy to get if you fulfill the eligibility criteria and they make financial sense if you have the equity, but there are several inherent risks:

• Variable or floating interest rates – they could always rise in the future
• Too easy to use – you could end up with “buyer’s remorse” after splurging on a bunch of unnecessary stuff
• complete repayment – if you’re not financially savvy and keeping a tight rein, you could find yourself in trouble at the end of the loan period
• Loss of character – defaults consequence in foreclosure and you could lose your home itself

That’s why exploiting the value of your home can be extremely risky if you attempt a home equity loan without complete understanding of the time of action and its repercussions.

Do’s and Don’ts

Protect yourself and your family by educating yourself thoroughly before undertaking a home equity loan. It could be a disaster in waiting if you’re not aware of the implications and repercussions.

Here are some pointers to keep in mind:


• Remember that it is nevertheless a form of mortgage

• Keep careful records of all repayments and charges including billing statements, bank records, canceled checks etc. so you can challenge inaccuracies with substantial proof.

• Read the loan contract very carefully

• Never include unlicensed contractors to do work on your home

• Use the loan amount to attempt genuine improvements in your home or at all event specific purpose you’ve taken the loan for

• Loan amount can be used to tide over unexpected events/crises if you don’t have an emergency fund

• It can be used to build a nest-egg for retirement

• Check if tax benefits or deductibles are obtainable


• It’s tempting, but never use your home equity loan to splurge on a bigger TV, boats, cars, cruises, vacations, etc

• If you’re planning to sell your home soon, avoid taking a home equity loan

• Don’t take out an unnecessarily large loan – keep it realistic. If the market drops you could be stuck with a enormous repayment situation

• Don’t get pressurized by heavy marketing tactics – educate and inform yourself

• Consult your family before taking out a loan

• Never sign documents that have blank spaces or one you haven’t read thoroughly and understood

• If necessary, get documents vetted by an expert

• estimate your repayment capacity and estimate whether you can really provide it

Today, interest rates are at a historic low and the economy is looking up. Many character owners are considering taking out a home equity loan and it’s indeed a great option if you have the credit-rating and eligibility. Plus if you’ve also evaluated the risks and benefits completely, approached a reliable, well-established and reputed institution or organization and done your research well.

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