Planning to take out a home loan?  Dos and don’ts

Planning to take out a home loan? Dos and don’ts

Planning to take out a home loan? Dos and don’ts

Maybe you’re looking to finance a big expense like putting your kids through college, you’re suddenly faced with large and unexpected medical bills, or you want to make major home improvements or repairs. A great way to get funds is to opt for a home loan. Based on your credit history and the loan-to-value ratio of your property, you can get a safe and convenient loan against your home.

What are Home Loans?

They are loans taken as collateral using the equity or market value of the borrower’s home. Equity is calculated using the difference between the market value and the outstanding mortgage balance.

Home equity loans have recently made a comeback after many weak years in the market. For those with good credit, interest rates are lower than other forms of loans such as personal/car loans or credit cards.

Risks

Home equity loans can be easy to get if you meet the eligibility criteria and make financial sense if you have equity, but there are a few inherent risks:

• Variable or floating interest rates – they can always go up in the future
• Too easy to spend – you may end up with “buyer’s remorse” after splurging on a bunch of unnecessary stuff
• Full repayment – if you are not financially savvy and hold the reins tightly, you may find yourself in trouble at the end of the loan period
• Loss of property – default can lead to foreclosure and you could lose your home itself

That’s why using the value of your home can be extremely risky if you take out a home loan without fully understanding the process and its implications.

What to do and what not to do

Protect yourself and your family by educating yourself thoroughly before taking out a home loan. It can be a disaster waiting to happen if you are not aware of the implications and consequences.

Here are some guidelines to keep in mind:

Do it

• Remember that this is still a form of mortgage

• Keep meticulous records of all payments and charges, including billing statements, bank records, canceled checks, etc., so you can dispute inaccuracies with solid evidence.

• Read the loan agreement very carefully

• Never hire unlicensed contractors to work on your home

• Use the loan amount to undertake genuine improvements to your home or whatever specific purpose you took the loan for

• The loan amount can be used to meet unexpected events/crises if you do not have an emergency fund

• Can be used to build a retirement nest egg

• Check whether tax credits or deductions are available

You should not

• It’s tempting, but never use your home equity loan to splurge on a bigger TV, boats, cars, cruises, vacations, etc.

• If you plan to sell your home soon, avoid taking out a home equity loan

• Don’t take out an unnecessarily large loan – keep it realistic. If the market goes down, you could find yourself in a massive payout situation

• Don’t be pressured by heavy marketing tactics – educate yourself and be informed

• Consult your family before taking a loan

• Never sign documents that have blank spaces or documents that you have not read and understood carefully

• If necessary, have the documents reviewed by an expert

• Assess your repayment capacity and determine if you can really afford it

Today, interest rates are at historic lows and the economy is on the upswing. Many property owners are considering taking out a home loan and it really is a great opportunity if you have a credit rating and qualify. Plus, if you’ve fully assessed the risks and benefits, approached a reliable, well-established and reputable institution or organization, and done your research well.

#Planning #home #loan #Dos #donts

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