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Home Equity Line of Credit
Home Equity Credit Lines
Using a credit line to have a loan against the equity in your home
is now a days a major basis of consumer credit. And lending companies
are giving these home equity credit lines in a diversity of ways.
Most loans have different rates of interst, some loans come with
appealing low rates, and a others come with rates that are fix.
You can probably find loans have big one-time upfront fees, loans
askinf for closing costs, and some have ongoing costs, such as annual
fees. You can find loans with significant amount of payments at
the end of the loan, and others with no amount but with more expensive
monthly payments.
There is not a perfect loan for each homeowner. It is necessary
to research about different home loan companies and try to find
the best home equity credit line for you.
It is very important to review the home equity contract with a
lot of attention before you sign. Make sure you uderstand clearly
the terms and conditions of your equity loan.
Do you need a home equity credit line?
If you need money from a lender, home equity lines may be one useful
source of credit. In the begining at least, they can provide you
with significant amounts of money at reasonably low interest rates.
And they may offer you with particular tax advantages not available
with other different loans.
It is good to remind you that your home is used for the loan on
home equity lines of credit . You can end up loosing your home if
you can not afford your payments. The loans with significant amount
of payment in he end, may force you to ask more money for lenders
to payoff this debt, or they may put your home in jeopardy if your
refinancing application for the loan is declined. When you sell
your home, the money will be used to pay off your credit line. Also,
because home equity loans give you basicly simple access to money,
you might find you have a loan of money more liberally.
Don't forget, you can borrow cash from lenders using alternative
ways. For instance, you decide to get second mortgage installment
loans. Eventhough these loans add another mortgage on your home,
second mortgage cash usually is loaned in a lump sum, rather than
in a series of upfront made available by writing checks on an account.
Also, second mortgages usually have interest rates that are fixed
and also fixed payment amounts.
You can borrow money from credit lines that do not use your property
in the transection. You can do that using credit cards or not secure
credit lines writing checks everytime you need the money. You may
want to ask about loans for specific items, like vehicles or tuition.
How much money can a home equity credit line lend to you?
It depends of the worth of your credit (your income, credit rating...)
and the quantity of how much you owe, home equity lenders could
lend you up to 85% of the appraised value of your home minus the
amount you still owe on your first mortgage. Find out about the
length of the home equity loan, whether there is a minimum withdrawal
obligation when you open your account, and whether there are minimum
or maximum withdrawal requirements after your account is opened.
Ask how you gain access to your credit line -- with checks, credit
cards, or both.
Also, find out if your home equity plan sets a fixed time -- a
draw period -- when you can make withdrawals from your account.
Once the draw period is expired, you may be able to renovate your
credit line. If you can not, you will not be allowed to have a loan
of additional funds. Also, in some plans, you may have to pay your
full remaining balance. In others, you may be able to pay again
the balance over a predetermined time.
What is the home equity loan interest rate?
Interest rates for loans fluctuate, so it pays to check with several
lenders for the lowest rate. Evaluate the annual percentage rate
(APR), which indicates the cost of credit on a yearly basis. Be
conscious that the advertised APR for home equity credit lines is
based on interest itself. For a real evaluation of credit costs,
evaluate other charges, such as closing costs and points, which
will include to the cost of your home equity loan. This is extremily
important if you are comparing a home equity credit line with a
traditional installment mortgage, where the APR includes the total
credit costs for the loan.
As well, ask your lender about the type of interest rates offered
for the home equity plan. Most home equity credit lines have adjustable
interest rates. Adjustable rates may offer lower monthly payments
in the begining, but payments may change and may be higher during
the rest of the repayment period . If offered, fixed interest rates
may be a little bit higher in the begining than adjustable rates,
but fixed rates offer stable month by month payments over the life
of the credit line.
If you are looking for adjustable rate (variable rate), research
about the terms. Research about the limit on interest rate changes
at one time (periodic cap).
Also, find out what is the limit on interest rate changes during
the loan term (the lifetime cap). Ask the lender how often and how
much the index they will be using can change. Lenders use an index
to calculate how much to increase or decrease interest rates. Ask
about how is the amount added to the index that determines the interest
you are charged (margin), whether you can transform your adjustable
rate loan to a fixed rate in the future.
Momentarily promotional interest rates are occasionally offered
by Lenders. A rate that is normaly low and lasts for an preliminary
period of time, such as twelve months. During this time, your monthly
payments are lower too. After the introductory period ends, however,
your rate (and payments) grow to the real market level (the index
plus the margin).
So, ask if the rate that they are giving to you is "discounted,"
and if so, find out how they will determined the rate at the end
of the discount period and how much larger your payments could be
at that time.
What are the upfront closing costs?
When you take out a home equity line of credit, you pay for many
of the same expenses as when you financed your primary mortgage.
These involve things like an appraisal, application fee, attorneys'
fees, title search, and points (a percentage of the amount you have
a loan of). These expenses can put significantly to your loan's
cost, especifically if you ultimately have a loan of little from
your credit line. To see if they will pay for some of these expenses,
you may want to discuss with lenders.
What are the continuing costs?
Additionally, some lenders require you to pay continuing fees during
the life of the loan, to upfront closing costs. These may include
a participation fee, or an annual membership, which is due whether
or not you use the account, and/or a transaction fee, which each
time you have a loan of money, it will be charged. The final cost
of the loan will add these fees .
What are the repayment terms during the loan?
Your payments may change if your credit line has a variable interest
rate as you pay off the loan, even if you do not have a loan of
more money from your account. Ask how frequently and how much your
payments can change. You probably will want to know whether you
are paying back both principal and interest, or interest only. Even
if you are paying back some principal, ask whether your monthly
payments will cover the full amount that they lended to you or whether
you will owe an more payment of principal when the the loan is over.
Also, ask about late payments penalties.
What are the end of the loan repayment terms?
When you take out the loan, ask about the conditions for renewal
of the plan or for refinancing the balance that is not paid yet.
Ask the lender to agree in advance and in writing to refinance any
end-of-loan balance or extend the time of your repayment.
What safeguards are built into the loan?
The Federal Truth in Lending Act is one of the best protections
you have, which tell lenders to notice you about the costs and terms
of the plan when you are given an application. Lenders must disclose
the APR and payment terms and must report to you of charges to open
or use the account, such as a credit report, an appraisal or the
fees for an attorney. Lenders also have to report to you about any
variable-rate feature and give you a brochure that descrobes the
general features of home equity plans.
If you decide not to enter into the plan because of a change in
terms, all fees you paid earlier must be returned to you. The Truth
in Lending Act protects you from changes in the terms of the account
(other than a variable-rate feature) before the plan is started.
you have three days to cancel the transaction for any reason, because
you put your home in risk when you open a home equity credit account.
You must inform the lender in writing to cancel. Following that,
your credit line must be cancelled and all fees you have paid must
be returned.
The lender may not terminate your plan, speed up payment of your
remaining balance, or change the terms of your account once your
home equity plan is opened, if you pay as agreed.
The lender may stop credit advances on your account throughout any
period in which interest rates go above the top rate cap in your
agreement, if your contract permits this action.
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