Home Equity Loan Drawbacks to Consider
When you're ready to move forward with a home equity loan, it's important to be aware of the potential drawbacks. Here are a few things to consider before taking out a home equity loan:
-Loan fees: Home equity loans typically come with a host of fees, including an application fee, origination fee, appraisal fee, and closing costs. These fees can add up, so be sure to factor them into your budget.
-Interest rate: Home equity loan rates are typically higher than the rate you'd get on a first mortgage. That's because lenders view home equity loans as riskier than first mortgages.
-Repayment schedule: Home equity loans typically have shorter repayment terms than first mortgages. That means you'll have to make larger monthly payments. Be sure you can comfortably afford the payments before taking out a home equity loan.
-Prepayment penalties: Some home equity loans come with prepayment penalties. That means you'll be charged a fee if you pay off your loan early. Be sure to read the fine print before taking out a home equity loan to avoid any nasty surprises down the road.