The Risks Involved

Risks
What is at stake with a home improvement loan

Taking on more debt is always a risk	Home equity loans are very helpful as it provides the money needed not only for buying and repairing homes, but can use it for other purposes like paying back credit card debts, pay for children’s college fees etc. For those with good credits, there’s plenty of standard home equity loans to choose. But not for home owners with unreliable and doubtful credit history and these homeowners are a good catch for the sub prime lenders. Some research reveals that these borrowers with shaky income and doubtful credit are likely to pay higher interest or fees as compared to those home owners with great credits. Actually the sub prime lenders don’t disclose openly about the likely rise of the interest rates; there have been instances of 18% to 23% interest rates not to forget the closing costs, sometimes it’s as high as $5,000 on a simple loan of $25,000. Such is the risk of equity loans in some cases.

	Well there are still more risk involved with equity loans. Some of the features that lenders sometimes offer which seems very attractive are instead very costly. Some borrowers are encouraged to increase an income much higher than the actual one while applying by the lenders, well aware that the borrower will be unable to make timely payments and the end result is, the owner loses the property. There is also the case of loan flipping, say the borrower is persuaded to take a loan more than the needed amount and for a longer term. Well here also, if not careful of the rates, the borrower will owe a lot and the one who profits from all the extra interest and fees is the lender of course. Another feature is the 125% borrowing which may look very juicy and even if it’s affordable, for those wanting to move out, this offer is not too good. The chances of getting back the 125% of the home value up on sale is very slim. Another, a home equity loan that is well above the fair market value of the property cannot get a tax deduction. As a matter of fact, the IRS seems to be keeping an eye on this loan so that the home owner doesn’t try to write off too much interest inaccurately.

Home Improvement Loan Risks What To Avoid Copyright 2005 Home Improvement Loan UK All rights reserved