Home equity loans are a great way to get the money you need, no matter what. If you have lived there for a while, it could also be enough money to make some of your dreams come true. Many people are using the value of their homes to do things they've always wanted to do. Still, there are a few traps along the way that can hurt people who aren't paying attention. When you get a home equity line of credit, here are four things to watch out for.
How much interest do I have to pay?
The interest rate on the home equity line of credit is probably one of the most important things you need to keep an eye on (HELOC). This means you'll have to keep an eye on the market and be a little bit patient. Wait until you find a good interest rate. The rate of interest may be close to that of a first mortgage, but it is usually a bit higher.
But there will be something called a margin in addition to the interest rate. This is an interest rate that is added to the prime rate and stays there for as long as the loan is in effect. This number is different for each lender, and most of them won't tell you unless you ask. You need to ask, because this could literally double the amount of interest you have to pay in some cases.
Is there a way to guarantee a conversion, if needed?
Since a home equity line of credit is a loan with an adjustable rate, you will want to be able to convert if you need to. This means that if the prime rate goes up, you will be able to change your loan from one with a high interest rate to one with a fixed rate. Most of the time, there are no limits on the interest rates on loans with variable rates, or the limits are hard to change. At the moment, only about two states put a limit on it, which is between 16 and 18 percent.
What are the costs?
A home equity loan can have a lot of fees, or it can only have a couple. It really depends on what the lender thinks he or she can get away with. There are no closing costs on many home equity lines of credit now, so look around to find one that doesn't.
There may also be a charge for each check you write. Another fee is called a "inactivity fee" and is charged if you haven't taken any money out of your account in a certain amount of time. Then, there may be a fee to join the programme, either once a year or every month.
How Is It Going To Be Paid For?
Another thing you need to check out is how the home equity line of credit works.
loan is to be paid back over time. You need to know how long the draw period is, or how long you have to take money out as you need it, and when you have to start paying back the loan's principal. Some HELOCs require a one-time payment for the full amount at the end of the draw period. You would have to refinance the loan to do this. In other plans, you have to start making payments that will eventually pay off the whole amount you borrowed, but the time it takes to do this can vary.
As you can see, different lenders offer many different features. When you go to apply for a home equity line of credit, you should make sure to get several quotes. Then, carefully look at their features and compare them to find the ones you like and that meet your specific needs for your equity.
