Home Equity Loan Myths and Facts
There are many misconceptions surrounding home equity loans. Below, we'll look at the most persistent myths about this type of lending and explain why they are untrue.
Myth: A Home Equity Loan Can Only Be Used to Pay for Home Renovations
A common misconception about home equity loans is that the money obtained can only be used for home improvements and upgrades. This is not true. These loans provide you with a lump sum of cash that can be used for any purpose, from paying school tuition to starting a business. You can even use your loan to pay for that special vacation you've been dreaming of.
Myth: A Home Equity Loan is the Same as a Home Equity Line of Credit (HELOC)
While home equity and HELOCs are similar in that they both allow you to use your home as collateral for securing financing, there are several important distinctions in how the two loans are structured. Home equity loans do not provide you with a one-time sum of money; instead, they provide you with a revolving credit account -- much like a charge card -- that allows you to access cash only as you need it. Also, a HELOC carries a variable interest rate that rises or falls to reflect market conditions.
Myth: Home Equity Loans Take a Long Time to Pay Off
Theses types of loans are structured in a similar way to traditional mortgages. This means that you'll be given a set period -- say, 5, 10, or 20 years -- to pay off the loan. Rather than making minimum payments, you'll pay a fixed amount every month until the loan is paid in full.
Myth: Taking Out a Home Equity Loan is An Easy Way to Lose Your House
While it's true that using your home as collateral can put your property at risk, foreclosures due to defaulted home loan are rare. If you make your payments on time and adhere to the terms of the loan, you won't have to worry about losing your home.
Don't let the above myths and misconceptions about home loans prevent you from obtaining the financing you need. Contact us today for more information about what a home equity loan can -- and can't -- do for you.
Request Mortgage Info