At times, life deals you a bad hand and are left with a few good cards to play and been in an unexpected financial need is a good instance of such times. However, it is possible to find some reprieve by looking for help from your best asset, your home. Taking a home equity loan can give you quick access to the extra cash you need. Nevertheless, it is important to know as much as possible about this type of loan before requesting for the credit extension.

Understanding The Loan

It is a line of credit that allows homeowners to borrow money against the value of their home. Lenders often cap the loan based on estimated percentages of the value of the house, which is around 80% as well as considerations of how much is owed on the original mortgage and if the borrow has a good credit score.

The loan applicant can assess the money through credit cards or special checks. Notwithstanding, the terms of the loan are also factored in when determining the tenure of the loan as well as how long the borrower can withdraw money on the loan. This also applies when determining how much can be withdrawn at a time, and the interest rate as well as the repayment methods.


Shopping For The Loan

Lots of lenders are available, and all offer different choices to customers, and this makes it hard to determine which lender has the best offers. It is an issue that calls for sourcing for and comparing quotes from the various reputable lenders. The lenders offer the loans with different interest rates that they determine using an index. Borrowers should take note of the index of each loan in the quotes to determine the possible interest rates.

Also, the caps begged on the loans also influence how far or quickly the interest can go within is valid tenure. Borrowers should pay keen attention to the lifetime caps because they govern how high the rates can change over the valid period of the loan. Also, it is important to inquire if the quotes also include a discounted introductory rate and its validity period as well as the rates that will be affected once the discount is over.


Costs To Consider

The law expects creditors to openly state the costs and terms of a loan before extending the cash to the borrower. Nevertheless, borrowers should ask for such information up front so that they can make comparisons then commit to a loan that suits their needs. The costs to consider when requesting for a home equity loan include:

  • Application fee, which is the money the borrower pays when submitting an application to the creditor. The application fee is often non-refundable.
  • Appraisal fee, which is money charged by the lender when appraising the house to determine its market value. Different lenders may charge different appraisal fees hence the need to compare between lenders.
  • Upfront charges, which is money required when setting up an account for the home equity line of credit. The charges vary substantially between creditors thus the need to make comparisons to find a lender with favorable fees.
  • Account fees, which are continuing charges associated with the loan account. The charges often include maintenance fees, transactions fees, and annual membership fee.
  • Closing costs, these are fees paid after qualifying for and getting the loan, and it also differs considerably between lenders.
  • Interest rates, which is the fixed charges the borrower will pay for over the loan’s tenure.

The information above sheds light on the various aspects of a home equity loan that borrowers should understand before requesting for and committing to the loan.