subject: Home Equity Mortgage - Things to Keep in Mind [print this page] Home Equity Mortgage - Things to Keep in Mind
A home equity mortgage is a great way to raise money for critical expenses. When you need a large sum of money, there is probably no other asset that can give you access to such a substantial sum. The fact that the home is your most valuable asset also makes it necessary for you to use extra caution before you sign up for any mortgage that is based on your home equity. Remember, if you fail to repay the mortgage, you are placing your home at risk. Here are a few things to watch out for before you take a home equity mortgage of any kind.
Balloon payment loans
Checking your home equity mortgage loan document in detail before you finalize your loan can safeguard you from balloon payment loans. These loans come with very low initial repayments that are very attractive to borrowers. Unfortunately many borrowers fail to understand that the initial repayments only go towards the interest on the loan. At the end of the low interest period, the borrower may have to pay back the entire principal amount in one lump sum.
Some balloon payment loans may come with phased repayment of principal beyond the initial low installment period. Even so, the principal plus interest installments can be substantial sums that place an enormous burden on the borrower's monthly finances. By going through your loan document in detail you can uncover such hidden' terms well before you sign up for this loan.
Packaged insurance products
Some lenders package their home loan products along with insurance schemes. You may be asked to sign insurance papers when you go in for finalizing the loan. The lender may give you the impression that the insurance is part of the loan at no extra charge. The fact is that the loan cost has been padded to cover the insurance cost too. You can definitely get a cheaper home equity loan without the insurance product. If your lender indicates that the loan may be rejected unless you sign the insurance papers, look for another lender instead of paying for insurance you do not need.
Good Faith Estimate (GFE)
The Good Faith Estimate is a good way to assess the total costs that you will incur when you finalize a loan. Your lender is required to give you a GFE on request. Although this GFE is not meant to be an exact prediction of the total costs, charges, fees and other expenses that the loan will entail, it should be a fairly accurate estimate of these. Before you close your home equity loan deal, ask for the GFE and go through it in detail. Avoid lenders who hesitate to give you a GFE for the loan you are interested in because this indicates that they may be trying to conceal certain costs.
Keeping these points in mind will help you identify an ethical lender and a suitable loan when you are shopping for a home equity mortgage. It is best to be extra cautious before you sign up for the loan so that you can enjoy the many benefits that these loans offer.
