12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
When to Use Home Equity as Collateral
By Richard BarringtonNFNS Columnist
The nature of a mortgage
is that it uses the borrower's home as collateral for the loan. This is true of
both primary mortgages and home equity loans, both of which are paid off
without a hitch in most cases.
What can make your use of home equity as collateral a
success is understanding the advantages of this method of borrowing and what
conditions should be in place before you commit to this type of loan.
Advantages of Home
Equity as Collateral
People wouldn't put their home equity at risk by using it as loan collateral unless there were clear advantages to doing so. Here are the most common:
- It can make credit available where it otherwise would not be
- Home equity loans may be obtained for longer terms than unsecured loans
- Home equity loans may have lower interest rates than unsecured loans
- Home equity can be tapped using an as-needed line of credit, via a home equity line of credit, or HELOC
- A home equity loan may carry lower closing costs than refinancing an existing mortgage
- Borrowing
against home equity may confer tax advantages that do not apply to
ordinary consumer debt
Determine how many of these steps apply to you, and whether
those benefits are worth the risk of using home equity as collateral.
Conditions
If you've determined that you would gain some advantage by
using home equity as collateral, make sure conditions are right for this kind
of borrowing. Specifically, determine that your financial situation is stable
enough for you to budget reliably. Then, make sure there is room in that budget
for the monthly payments a new loan would require, with a little cushion left
over just in case.
About the Author:
Richard Barrington is
a freelance writer and novelist who previously spent over twenty years as an
investment industry executive.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.