Disadvantages of Home Equity Loan
1. Easier to Fall into Debt: If the borrower falls into the trap of the perpetual cycle of spending, borrowing, spending and then drowning deeper into debt, then lenders reload the loan amount by paying off existing debt and disbursing only the remaining credit to the borrower.
2. Risk Associated: If the borrower fails to repay the loan amount, the home would be sold to the lender. Further, if the borrower wishes to sell their home before the repayment of the loan, the balance of the loan will be due.
3. Taking Loan more than the Worth of the House: The borrower might be tempted to avail loan more than the worth of their home which would lead to higher interest rates as the loan is not fully secured by the collateral and the excess loan amount is taxable. Further, the temptation by the borrower might arise knowing that another loan might not be availed in the near future.