By: Mevish Jaffer
A home equity loan is an excellent resource for obtaining funds when you really need it. Because you are not always equipped to handle financial situations that come your way, especially when they are unexpected, a home equity loan can provide you with the financial support you require in times of need. Home equity loans are specifically used to finance large expenses such as renovations on your home, university tuition and fees, medical bills or debt consolidation.
Additional benefits of a home equity loan include tax deductible rates and a lower monthly payment amount. If you are considering the possibility of applying for a home equity loan, you need to do your research carefully and be aware of all the costs associated with your loan.
Home Equity Loans: Associated Points, Fees and Rates
Every home equity loan lender’s costs will vary, which is why it’s important for you to find a reputable company that has a proven track record and will offer you competitive rates. If you’re a first time home equity loan borrower, you may not be familiar with all the costs associated with your loan. These include home equity loan points, fees and interest rates.
There are generally two types of home equity loan points you can pay. The points paid upfront at the closing of your loan which are used to decrease interest rates are known as discount points. The way it typically works is that one point is equivalent to one percent of the total amount of your loan. The other type is called origination points. These are the home equity loan points you pay for services provided by your lender through out the loan process. Other related home equity loan costs include application fees, appraisal fees, closing costs, legal fees, and insurance.
Home equity loan rates vary significantly from company to company and tend to change daily. If you find a lender who offers you a satisfactory rate, make sure you lock it in with the lender so it doesn’t change before making a commitment. Some of the rates you should be aware of include:
- The APR represents the amount for all the costs associated with your home equity loan interest rate.
- Fixed interest rates remain the same for the duration of your home equity loan. While fixed rates are slightly higher in the beginning, they offer steady monthly payments that will not change over the life of your loan.
- Adjustable interest rates change over the period of your home equity loan and although they may be lower than fixed interest rates in the beginning, they can be higher during your home equity loan repayment period.
Home Equity Loan Companies
Because the interest rates on your home equity loan tend to be a little higher than your first mortgage loan, it’s important to shop around for the right home equity loan lender/company to represent you. This doesn’t mean you can’t negotiate a lower rate on your home equity loan; however you do have to do your research. You can start by checking with your current mortgage company to see if you are eligible for a home equity loan with them. The foundation you have laid and relationship you have already built with them can help you to lock in a lower interest rate. You can also attain quotes from several different loan companies to ensure you get the best deal possible on your home equity loan.
