You may pay a higher interest rate on the additional amount you borrow. If you don’t read the fine print, you may agree to pay more interest over time on any other funds you borrow.
Extra Funds Aren’t Guaranteed
If you lose your job, rack up credit card debt, or have a financial emergency, your lender is not required to release the amount they initially agreed to lend you.
Other Lenders May Want To Avoid You
Many lenders agree to collateral mortgages that are more than 100% of the home’s value. You won’t be in a good situation if you can't access these funds.
For example, taking out a collateral loan for $600,000 on a $500,000 property makes you look like a credit risk to other lenders.
More Fees Apply When Switching Lenders
Collateral mortgages are registered with your original lender, so even if your term is up, you’ll likely have to pay extra fees when switching to a new lender.
You Could Lose Your Home
If you default on the loan, you may not be able to get your home back, as the lender can seize it and sell it to recoup their losses.