----------------------------------------------------------------------------------------
The Costs of Having an Equity LoanGetting a home equity loan can be a great way to consolidate bills or to come up with money for big expenses, such as home improvement or college tuition. But, this type of loan needs to be considered carefully because there are many hidden costs involved with getting a home equity loan.
Home Equity Loan Fees and Closing Costs
Nearly every home equity loan involves fees and closing costs, though many lenders will not charge these fees if you get a home equity credit line. If you do have to pay fees for a credit line, you need to consider other benefits offered by the line before deciding if the cost is worth it to you.
In all, the fees you pay for a home equity loan are generally equal to 2-5% of the loan. These costs may include the following:
- Application fee
- Property appraisal costs
- Title search
- Document preparation costs
- Attorney or title agent fees
When it comes to credit lines, the most common fee is the appraisal costs. This cost can sometimes be avoided, however, if the lending institution is willing to accept a computerized estimate that is called an automated valuation model. This is called an AVM. Another option is to get an estimate from a real estate agent. This is called a broker's price opinion, or BPO. Both AVMs and BPOs cost less than an appraisal.
Interest Rates
You also have to watch out for interest associated with equity loans. If you get a lump-sum home equity loan, you will probably receive a fixed interest rate. If you get a home equity line of credit, however, you will probably have to deal with variable rates. While equity loan interest rates are generally lower than credit card interest rates, you have to keep in mind that any interest rate � no matter how small - involves spending money out of your pocket beyond what you have borrowed.
You also need to watch out for teaser rates. These are low rates that the lending institution initially gives you, only to increase the rates later. If you get an equity line of credit, you will your variable rate can change every year, every quarter, or even every month.
Fees
Fees are another area to watch out for. For example, you might be required to pay an annual maintenance fee in order to keep your loan active. Or, you might have to pay transaction fees every time you access funds from your home equity line of credit. Even if you do not use your line of credit for a period of time, you may be assessed an inactivity fee. If you decide to close your account early, you may also have to pay fees. If you will be selling your home in a few years, you might want to avoid getting a home equity loan. Otherwise, you will likely have to pay fees for closing the account early.
Pay attention to these fees and ask about them before applying for a loan. That way, you can determine if these fees will be worth getting the loan in the first place.
----------------------------------------------------------------------------------------
|
|
|
Username:
joannertollman
Profile:
I have been a fan of the web for a long time. I like to write about all kinds of subjects.
Mozaics by this user:
|
|
