The Disadvantages of a Fast Home Equity Loan

A fast home equity loan can be very enticing when you are looking for money. While getting into your home equity quickly can be handy, there are some disadvantages to doing so. Here are a few things to think about before you blindly jump into a home equity loan.

Rushing

Rushing through the home equity application process can be a big mistake. When you apply for a home equity loan, sometimes there can be a lot of paperwork and financial jargon involved. You might think that the faster you get through the paperwork, the better off you will be. However, this is not always the case. 

When you rush through the application process, you might not fully understand what you are signing. There have been several unscrupulous home equity lenders out there that have taken advantage of this situation. They realize that if they can get you in and out quickly, most consumers will never look at what they are signing. This means that they can basically have you agree to whatever they want. 

You might see a 2% interest rate and be very excited. However, what they did not fully explain is that the 2% interest rate is only for a 3 to 6-month introductory period. After that, the rate jumps up to a variable interest rate based on the prime interest rate. They might even throw in a steep prepayment penalty to keep you from getting out of the loan before they make their money. You can avoid this situation by reading the fine print and making sure that you ask plenty of questions. Any home equity lender that is trying to rush you through the process usually does not have your best interests in mind.

Other Options

Besides the mistakes that you could make by signing up for a bad loan, you also might regret getting a home equity loan all together. Your home equity is a very precious commodity. Once you use it up, it is gone. For many homeowners, it is their only source of funds in case of an emergency. This means that if you use it up for something frivolous and something bad happens, you could be in a great deal of trouble. Many homeowners have found themselves in this position before and deeply regretted using their home equity so freely. 

Before you agree to a home equity loan, you need to make sure that you have exhausted all of your other options. If you have any other types of loans or savings that you can use, you might be better off. For example, you might have a whole life insurance policy that you can borrow against. This will give you more flexibility in the repayment period and conserve your home equity. Regardless of what you do, just take your time and make sure that you understand the consequences of using your home equity. 

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