Home Equity Loans and Lines of Credit
There are numerous types of loans available to today's consumers as
there is no shortage of financial institutions willing to lend money to
qualified individuals. It is simply a matter of matching your needs to
what is available in the financial marketplace. One of the more popular
type of consumer loans are the home equity loan or home equity line of credit.
Home equity loans are one of the more common types of financing options for doing home improvements and additions. These loans are based on the equity (total value of the home - outstanding mortgage) you currently have in the house and are not necessarity to be used for home improvements. They can instead be used to obtain extra cash that can be utilized for investing or any other form of spending.
Using a credit line to borrow against the equity in your home has become a popular source of consumer credit. And lenders offer these home equity credit lines in a variety of ways. Most loans come with variable interest rates, some come with attractive low introductory rates, and a few come with fixed interest rates. You also may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. There are loans in the marketplace with large balloon payments at the end of the loan, and others with no balloons but with higher monthly payments.
Depending on your creditworthiness and the amount of your outstanding mortgage/debt, home equity lenders may let you borrow up to 85% of the appraised value of your home minus the amount you still owe on your first mortgage. Ask the lender about the length of the home equity loan, whether there is a minimum withdrawal requirement when you open your account, and whether there are minimum or maximum withdrawal requirements after your account is opened. Inquire how you gain access to your credit line -- with checks, credit cards, or both.
Things to consider when looking at different loans include interest rates and terms of the loans. The interest rate, while dependent on the rate on the current market, may differ between lenders. Terms and conditions can be dependent on length of loan, flexibility of interest rate and credit standing. When you take out a home equity line of credit, you pay for many of the same expenses as when you financed your original mortgage (closing costs). These include items such as an application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow). These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line.
You may want to negotiate with lenders to see if they will pay for some of these expenses. In addition to upfront closing costs, some lenders require you to pay continuing fees throughout the life of the loan. These may include an annual membership or participation fee, which is due whether or not you use the account, and/or a transaction fee, which is charged each time you borrow money. These fees add to the overall cost of the loan. You may be able to find online lenders that will pre-approve you online within minutes of sending them the required information.
