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Home Equity Loans: tips and information
Think about the following five tips before plunging head-first into more debt!
It seems like any excuse is enough to make people run and start tapping into their home equity. A recent MSN.com article discussed the tremendous growth in home equity lending, and gave some tips on how to wisely tap into the equity built up in your home.

According to smrresearch.com, growth in home equity loans went over 30% in 2004. Does this mean the lending institutions are taking on more risk? On the contrary, lenders are in the same position they always are, because your home is the collateral, so there is generally very little bad debt. This growth trend has been seen for both home equity loans, which are similar to regular mortgages, and in home equity lines of credit, which are more like credit cards in that you are given a credit limit, upon which you borrow against.

Getting a Good Rate
Unfortunately, the tale everyone has been telling is true; an awful lot depends on your credit score. You can expect to get the following rates based on the following credit score boundaries:


Good Credit > 760 ½ point below prime
OK Credit 700-759 prime
Poor Credit < 700 anything from 1 to 5 points above prime.

Paying Minimal Fees
Certain fees, such as recording fees and annual account fees are to be expected, but they should not be extravagant. Other fees, such as application or appraisal fees should be avoidable if you have decent credit.

Make sure you are aware of all the fees getting tacked on to your loan, and that nothing is out of the ordinary.

Tax Rules
If you have enough deductions to make itemizing your deductions worthwhile, then obviously being able to also deduct the interest portion of any new line of credit is a good thing. However, if you do not have enough

deductions, then it is possible that other loans will actually give you a better rate. The bottom line is shop around, and do not be fooled into thinking tax deductions automatically make this the way to go.

Understanding the Consequences
Getting a new home equity loan or line of credit can be an excellent way to solve some tricky financial issues - as long as you are aware of what the consequences are. By borrowing on the equity in your home, this

reduces the amount that can be used to buy your next home, or can be used for your retirement when it comes time to move to somewhere smaller.

20% Rule
Another consequence of tapping into your home equity is that you are nibbling away at a source of savings that can be used in times of emergency. A sensible rule to try and abide by is to always have the total of

yourmortgage and home-equity loans not to exceed 80% of the value of your home. This leaves you at least 20% of the value of your home that can be used if there is an emergency. Everybody’s situation is different, and there is no easy answer as to whether getting a home equity loan is right for you. However, by understanding your situation and the reality of home equity financing, you can discuss your situation with a home equity loan expert, and determine the right course of action for you!

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