Home Equity Loans Rate | Home Equity Debt Consolidation Traps
Have you seen the ads? “Home equity loans are the perfect way to consolidate debt.” But the Federal Trade Commission warns, “Borrowers Beware!” And, the warning goes double if you’re a homeowner on a fixed income, a low income or have poor credit.
Why? The answer is simple. Home equity loans are very risky. You could end up losing your home and all the equity you put into it if you’re not able to pay back your loan and you don’t want that.
Sure, you’ll probably get a lower interest rate than you’re currently paying on your credit cards and the interest you pay will probably be deductible on your income tax returns, but you’ve got to understand you’re not going to get something for nothing. If you’re a risky borrower, lenders are just going to charge you a much higher interest rate, extra points or both to cover their risk. These extra charges could make your loan so costly you’d just be getting even deeper into debt.
Why do you suppose aggressive lenders advertise directly to risky borrowers?
The reason is the mortgage industry today is incredibly competitive and there are many predatory lenders who will promise risky borrowers anything – low interest rates, low monthly payments, no credit checks, no appraisals, free toasters – in order to get your business and their hands on your valuable home equity.
Why not? If you pay back your loan, they win. And if you don’t pay it back, they win. They just take your home and all of its equity in foreclosure. They have nothing to lose, but you could end up losing everything, including the roof over your head. And, if you don’t think that’s a possibility, consider the fact that foreclosures doubled last year in the state of California and are increasing all over the country.
Now I’m not saying you shouldn’t consider using a home equity loan to consolidate your debt. That choice is up to you. But, I do highly recommend that you do your homework first. Make sure you read all the ads, check out all the possibilities and carefully compare your options. If you’re not confident you’re making the right decision, definitely go over the small print with a fine tooth comb with a relative or friend you can trust who has more experience in these matters.
Follow this advice and you’ll have a good chance to consolidate your debt, save some money and still keep your “home sweet home.