Finding the Best Home Equity Loan and Line of Credit

When you speak of home equity, it is important to know exactly what the term ‘home equity’ really is. Home equity refers to the difference between the fair market value of your home and the mortgage balance that is left on your house. So if your home has a fair market value appraised at $100,000 and the amount that you owe on your mortgage is $60,000, then your home equity is basically $40,000.

When you are offered an equity home loan, there are many things you will have to consider. Remember, you are putting your home up as collateral to be able to avail of a loan. Once you don’t make the payments on that loan, you must endure the risk of losing your home entirely because of a loan that you can’t pay off. Here are some tips on how you can find the best home equity line of credit or best home equity loan that will fit your needs.

First, make sure you avoid incurring fees that are not really necessary to your home equity loan terms. There may be a set of fees and charges that may be necessary such as bank filing fees, application fees, appraisal fees or even closing costs. However, anything apart from these fees, you will have to ask the bank or lender what those fees are for. Sometimes they may include fees that are optional but won’t tell you that you don’t need to include them, such as credit insurance.

Second, try to find an equity home loan that has a fixed rate that is at a reasonable percentage. Having a fixed interest rate will allow you to better plan and manage your finances in the long term. Having a fixed rate will also prevent you from getting into nasty surprises such as variable rates that shoot up when the economy is not doing so well. If you get a variable rate on your home loan equity, be sure that there is a possibility that you can switch to a fixed rate after a specific number of years. Also, make sure that there are caps on the interest rates that the bank or lender applies. When the economy goes bad, you don’t want to be stuck with an interest rate that will shoot up without limits.

Third, surprisingly, if you want to pay your entire loan earlier than the term allows, you need to find home equity loans that will not charge you pre-payment penalties. Be sure that you will be given an opportunity to get your loan recalculated if you want to pay your entire principal amount earlier to avoid paying the interest charges.

Fourth, don’t be fooled by low monthly payments. Just because monthly payments are low does not mean that the interest rates are also low. You may end up paying for a long time or you may end up paying a final balloon payment on the principal amount. Ultimately, be aware for what you might get into before you attach your signature to it.