What are the disadvantages of a home equity loan?

What is a home equity loan?


A home equity loan is a kind of mortgage loan wherein the borrower utilizes the equity of his/her home as collateral. The amount of the loan depends on the price of the house. An appraiser from a lending institution shall be the one to determine the value of the property.


The main disadvantages of a home equity loan:


Interest Rates

Home equity loans generally have fixed interest rates, but they often come with variable interest rates. If you want to pay back your loan immediately, you should thoroughly review your interest rate.


At first, the adjustable-rate-mortgage (ARM) interest rate may seem manageable, but it can exponentially grow over time. The accumulated amount of interest rate will make your monthly payments extra hard to pay.


It is of maximum importance to research and compare the terms and conditions of different lenders. Moreover, it would be best if you become aware of the varying interest rates of their loans. On top of that, also calculate the interest rate of the home equity loan— before you even borrow. Failure to do so can cost you your home-sweet-home. So beware!

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Author: Donna Woods

  • 6+ years of experience in financial analysis
  • 5+ years of experience as a writer, published author, editor, and screenwriter