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Home Equity
Loans-What to Look
For
Like any other
financial transaction, make sure the home equity loan meets your
needs. Don't borrow $10,000 if you need $15,000 and generally visa
versa don’t borrow more than you need. Read carefully the terms and
conditions of the loan. Compare closing costs of different lenders.
Closing costs of attorney fees, application fee, appraisal fee, fees
for title work, points, title insurance are all usually at least
negotiable if not waived all together.
There may be a
monthly or annual maintenance fee and a transaction fee every time
you draw down on the account. And of course be well aware of the
APR. For example, if you were using the money to get a car, new or
even used car financing from the dealer might be cheaper.
The rate you are
charged depends on your credit score. If you have even an average
credit score you may be able to negotiate not paying all or most of
the closing costs. Know the rules on the deductibility of the
interest on your loan. If you do not itemize your deductions chances
are you cannot take advantage of this feature.
All of these
details should be given to you as part of the Truth in Lending Act.
You have three days to change your mind about the loan but the
change must be made in writing to the lender who must return any and
all fees paid to open the account.
If you are not
careful, the cost of the loan can exceed the amount you use on a
monthly basis. And lastly have a plan in mind for repayment of the
loan. When the loan comes due, if you cannot repay it you could lose
your house. You can make a balloon payment at the end of the term,
refinance the loan, or make monthly payments during the term of the
loan to pay off the loan.
A home equity
loan/line can be a great tool if used properly. It does put your
home at risk and thus deserves serious thought as to the purpose and
how the money will be repaid.
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