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2. Con: Your House Is Collateral for the Loan

Yes, that's the reason the interest rates on your home equity loan are so low. However, if you should fall into financial difficulty and default on your loan for any reason, your lender has the option to file for foreclosure and take your house. It's possible that you could lose a home worth, say, $500,000 because of failure to make payments on a $30,000 loan. It's important to understand this risk before you enter into a home equity loan.

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