The pluses and minuses of home equity and borrowing
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Home equity loans have advantages and disadvantages compared with other kinds of borrowing. Consider the pros and cons of borrowing against the equity in your house before you think about getting a loan.
Pluses
- The interest on a home equity loan is tax-deductible, just like the interest on your mortgage.
- Home equity loans can have lower interest rates than other kinds of loans, such as credit card debt, because you're using your house to guarantee the loan will be repaid.
- A home equity loan gives you a source of funds for important big purchases: a college education, needed home repairs, a medical emergency, etc.
Minuses
- If you don't make your payments on a home equity loan, you could lose your house.
- You often have to pay fees up-front before taking out a home equity loan, similar to the closing costs you paid when you bought your house.
- Having a lot of equity in your home can make you a target of high-pressure sales tactics designed to get you to rush into an expensive loan you may not need. If you feel like you're being pressured to borrow, just say no – always take your time when you take out a home equity loan.
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BorrowSmart Public Education Foundation provides the knowledge, skills and tools home equity borrowers need to gain financial literacy and "borrow smart."
Established in 2001, BorrowSmart and its partners empower consumer equity borrowers through lenders, credit counselors, regulators and direct contact by providing free information and education that leads to open access to available credit for all homeowners.
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BorrowSmart Public Education Foundation will grow to a national presence and be recognized throughout the housing and financial communities for its educational programs and services to reduce the national foreclosure rate among home equity borrowers. BorrowSmart programs will create smarter home equity borrowers and more home ownership retention across America.
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