If you are considering taking out a home equity loan or a second mortgage you need to proceed with caution. You are taking an asset and basically cashing out the value you actually hold in the asset. Many people consider doing this in order to pay off debt, finance education, remodel their homes, or for other various reasons.
If you are considering doing this so that you can pay off already existing debt, then you need to realize that the majority of people who do this end up with the same amount of credit card and other debt within two to three years of taking out a home equity loan. This can be an expensive risk. If you have weighed all other options, and this seems to be the only choice available, you will need to drastically change your spending habits. You should cut up and cancel most of your credit cards, and work aggressively to repay the debt as quickly as possible.
If you are considering taking out a home equity loan to pay for you children’s college expenses you should carefully weigh the options. Student loan rates tend to be a lot lower than home equity loans. Both are variable based on the market, but Stafford loans are really much more affordable. While it is important to help your children get a good education and a good start, is it worth it to risk your financial security especially as you are reaching retirement years? Your home may be your most valuable asset and you may not be in a position to profit from it if you have a home equity line.
If you are considering remodeling your home, you may want to see if you can wait and save for the remodel rather than have it done immediately. This is not always possible; things like a new roof won’t wait, but adding the addition or the extra bathroom or state of the art kitchen may be able to.
Many banks are eager to open a home equity loan or a second mortgage, because it is a secured loan. They may say it is one of the easiest ways to get money. You need to realize that you are putting at risk one of your safest assets, and risking your future when you do so.