Read more: Tapping home equity went all the craze
Home equity loans are taken to satisfy a wide selection of needs, Maloof explained, “While I can not speak to people’s unique borrowing needs, a few of the traditional reasons people take out home equity loans are to finance home renovations or to cover major living expenses. events. How a borrower uses the proceeds of a house equity loan can have tax implications and it will be significant that the lender is capable of provide appropriate guidance. “
Despite its growing popularity, many individuals don’t fully understand the intricacies of home equity loans. Among the survey results:
- 48% of respondents rated their knowledge of home equity loans below 7 out of 10.
- 13% didn’t understand in any respect (rating 1/10). 18% reported full understanding (10 rating)
- The average response was 6.3 out of 10
- While under 55s usually tend to take out a house equity loan in the subsequent 12 months, they’re less knowledgeable about how home equity loans work (30% scored a 1/10) in comparison with those aged over 55 (only 9% scored 1/10).
- People within the Northeast usually tend to take out a house equity loan this 12 months (31%) in comparison with the Midwest (22%), South (18%) and West (19%)
- People living in urban areas say they usually tend to take out a house equity loan (36%) in the subsequent 12 months in comparison with those living in rural or suburban areas.
Tim Wheeler, vp of corporate lending at Fortera Credit Union, explained the widespread lack of knowledge regarding equity. “Home equity loans and features of credit typically have terms, disclosures and costs unrelated to other types of consumer credit,” he said. MPA. “While closed-ended home equity loans share characteristics with first mortgage products which might be more familiar to consumers, they are usually not as common as other types of credit. Home equity lines of credit can have several types of payments,” he said, citing fixed payments or interest only as examples, “grace periods and maturity.” Borrowers should take extra care to make sure they understand certain terms before proceeding.
Consumers also needs to concentrate on the potential pitfalls: “Using equity can create additional risks if the borrower decides to sell the property in the long run,” he said. “Depending on the combined loan-to-value position, they might not realize the expected profit/net profit. Additional risk would come from using capital built over time to repay routine, recurring expenses, as an alternative of, for instance, equity lines and loans ought to be fastidiously managed as a part of the borrower’s overall budget. Lenders should offer educational tools and programs to assist borrowers who face financial difficulties.