What is a home equity loan and when are equity loans necessary? The equity is the difference between what you owe on your home mortgage and what your home is now worth. A home equity loan is a second mortgage on your home. This money can help you with home improvements, college fees or even with consolidating bills. Many find a home equity loan invaluable. Cheap home equity loans are usually paid off in about 15 years as compared to first mortgage payments that can be 30 years.

Watch For Home Equity Scams

Beware of the agent who encourages you to seek any equity loans that you cannot afford. Padding your income on the application will only help you get in debt over your head. This agent will foreclose on the loan, taking your home away, as soon as you default on your debt. This is a common scam to be aware of. Only take out an equity loan if you can afford the monthly payments.

Some agents charge high fees for flipping on equity loans. Flipping is a term used for refinancing your home so you can receive cash. Agents often will try to flip a home more than once. The cash often sounds tempting but don't do it. Most often they have hidden fees and interest rates are high. Don't fall for this scam as you'll end up further in debt than you planned. Many times these loans will come with a penalty fee if you should decide to pay the loan off early, putting your even further in debt.

Research all loan terms before you agree to sign on the dotted line of any contract. A scammer will offer equity loans that sound great but in reality your payments are low because you are only paying back the interest and nothing on the principal. Once the loan term is up, the entire balance is due. This would be the original amount borrowed. A lump sum is due all at once, called a balloon payment, making it about impossible for you to pay. They then will foreclose on your home.

Check final terms on any contract for equity loans that you sign. Some lenders will add on small charges in hopes that you won't notice. These small fees can add up. Speak up if you see added charges that haven't been explained to you. Don't ignore them. Let the agent rewrite the paperwork till you are satisfied.

Never sign over a deed to your home when a lender offers to help you. Always keep the deed in your name even if you are in fear of foreclosure. Lenders and agents should be there to help you. It won't be necessary for them to have the deed to your house in their own name. Always check out a lender with the Better Business Bureau before following through on any home equity loans.