Home equity loans or lines of credit allow you to borrow money based on how much “equity” you have in your home. Generally speaking, your home’s equity is the current market value of your home minus the amount you owe on your mortgage. But this is not an exact formula; there are many other factors that are considered when determining equity.
With a home equity loan, you can either get one lump sum payment, or a line of credit that allows you to draw upon the money as needed.
Home equity loans require monthly payments to repay the loan. These payments start as soon as you take out the loan. If you don’t make these monthly payments, you can lose your home to foreclosure.
If you decide to apply for a home equity loan, make sure you can afford it. Figure out how much you can afford to pay, and then shop around. Be careful about hidden costs and fees and predatory lenders. Don’t sign anything unless you understand and agree to the terms. Don’t risk foreclosure or risk losing equity in your home by spending too much to borrow money.
REMEMBER: It is never a good idea to pay credit card debt or medical bills with the equity from your house. If you are having difficulty with a debt collector and are worried about not paying a debt, contact an attorney first. If you don’t own a lot of property, you may be “collection proof.” This means a debt collector cannot collect against you. An attorney will be able to advise you on how best to proceed. Call the Legal Services for the Elderly Helpline at 1-800-750-5353 to talk to an attorney for free. For more information about how to handle your debt, click here to see the chapter “Managing Your Debt” in this handbook.