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|Home Equity Loan Pitfalls
Posted by nick_niesen on October 29th , 2010
The home equity loan came of age in 1996 when changes in the tax law eliminated deductions for the interest on most consumer purchases. Interest paid on home equity loans, however, remained exempt , up to $100,000 for taxpayers filing jointly.
The two main types of home equity loans are fixed-rate loans and variable-rate lines of credit (called HELOCs). The terms for both range from five to 15 years. With fixed-rate loans, the monthly principal and interest stay the same. Adjustable-rate loans usually start at a lower interest rate聴meaning a lower monthly payment聴but can climb to a predetermined cap based on market conditions.
Most banks and mortgage companies are happy to make home equity loans because the loan is secured by a tangible asset that can be seized and sold to satisfy the debt if necessary , which minimizes their risk. But the ease with which homeowners can cash out their equity聴sometimes up to 125% of the value of the home聴brings with it certain pitfalls.
Home equity loans are appealing to people who have fallen into a downward spiral of spending and borrowing. The cycle of getting a loan to pay off debt and free up credit that is then use to make additional purchases is called 聯reloading.聰
Reloading leads to accelerated borrowing that can result in homeowners getting upside down on their home loans, e.g. owing more than the home is worth. The loan is no longer fully secured by collateral and if the borrower聮s income goes down or the home聮s market value plummets, the owner could face foreclosure or bankruptcy.
People who consolidate their credit card bills or car loans into a home equity loan are transferring unsecured debt to secured debt and putting their home in jeopardy.
Home Equity Scams
Another pitfall is predatory scammers. The Federal Trade Commission warns about , 聯Unscrupulous lenders (who) target older or low-income homeowners and those with credit problems. These lenders may offer loans based on the equity in your home, not on your ability to repay.聰
Avoid lenders who tell you to falsify information on the application, e.g. saying your income is higher than it is to qualify for the loan.
Avoid lenders who don聮t provide the required loan disclosures or who tell you not to read them; or those who won聮t give you copies of the documents they want you to sign.
Avoid lenders who promise one set of terms when you apply , and give you another set of terms to sign; or who ask you to sign blank forms, saying they'll fill in the blanks later.
Don聮t let anyone pressure you into using your home as collateral to borrow money you may not be able to repay. If you can't make the payments, you could lose your home.
On the Plus Side
A home equity loan does have some pluses. Compared to other forms of borrowing , it is easier to get, comes at a lower interest rate, and has tax advantages that other loans don聮t. It can help borrowers clear up outstanding bills while leaving them with a single monthly payment at a lower rate of interest. True , this doesn聮t reduce debt, but it can restructure it in beneficial ways.
Many websites like offer helpful information and a free quote. It doesn聮t hurt to see how much you might be qualified to borrow; just make sure you weigh the pros and cons before signing anything.
For some people it is the fulfilment of a lifelong dream to become a citizen of the United Kingdom. For some it means returning to their ancestral roots and for others it is the anticipation of a new and different lifestyle. For anyone considering citizenship, it means announcing their commitment to becoming a loyal and contributing member to the UK way of life.
There are really very few steps to finalizing UK citizenship. Here is a short guide that highlights the main procedure.
The first step to becoming naturalised as a UK citizen is to determine if you are eligible. A person is considered eligible if heshe is 18 and has been living in the UK for the last five years or three years as a spouse to a UK citizen. You may also be eligible to apply if your spouse is in designated service to the crown outside of the UK.
Your next step is to obtain and fill out an application. Forms are available through government agencies or you can enlist the help of a UK immigration lawyer to help you obtain and fill out your application. The application will provide information on where to send it when completed and what fees and documents you must submit with it.
Once your application has been submitted , you can expect some waiting time before you hear if it has been approved. The British authorities make every attempt to process applications within six months. You should receive notice that your application has been received, and the government will contact you if they are in need of any other documents.
Before submitting your application you will need to either take the Life in the UK test or pass a relevant ESOL course to prove your knowledge of life in the UK. The former is a test of 24 multiple choice questions based a wide range of topics chosen from the book "Life in the United Kingdom...A Journey to Citizenship," which you are required to read. There are many web sites that offer some pre-test quizzes that you can take in preparation. There is a fee to take the test which is payable for each time you try the exam , so it pays to study well and pass on the first try!
When you finally receive the good news that your application has been accepted, you will also receive an invitation to attend a citizenship ceremony. Details of the ceremony and how to prepare for it will be included with the invitation. At the ceremony you will say an oath and pledge your allegiance to the Queen and country or make an affirmation. Upon completion, you will receive your long aw.