What to Look for in a Home Equity Line of Credit
There are certain terms of a home equity line of credit that you should be looking for when shopping around.
Certain terms will make the line of credit more beneficial than other terms.
So when you are looking for next home equity line of credit, make sure that these terms are associated with the loan before signing on the dotted line.
Application Fee or No Application Fee? Most lenders do not charge an application fee for a home equity line of credit.
If an application fee is charged, then make sure that it is credited to any closings costs that are associated with the loan or that it is refunded at the time of closing.
No Closing Costs Most lenders do not charge closing costs for an equity line.
Compare the lenders that are charging costs to those that are not and see how the terms differ from one another.
You may pay a slightly higher rate for the equity lines that do not have closing costs but this may be more beneficial than paying thousands of dollars in upfront costs.
Periodic Rate Cap Since equity loans usually have a variable rate it is important that there is a periodic rate cap.
A periodic rate cap will keep your interest rate from jumping too high from one adjustment period to another.
Most periodic rate caps are 2%, so if the interest rate adjusts every 6 months, then the rate will not adjust up or down more than 2% every 6 months.
Lifetime Rate Cap Since equity loans usually have a variable rate it is important that there is a lifetime rate cap as well.
A lifetime rate cap will keep your interest rate from jumping too high over the entire life of the loan.
Most lifetime rate caps are 5%, so if you have the loan for 10 years, then the rate will not adjust up or down any more than 5% above the original interest rate that was established when the loan was established.
Certain terms will make the line of credit more beneficial than other terms.
So when you are looking for next home equity line of credit, make sure that these terms are associated with the loan before signing on the dotted line.
Application Fee or No Application Fee? Most lenders do not charge an application fee for a home equity line of credit.
If an application fee is charged, then make sure that it is credited to any closings costs that are associated with the loan or that it is refunded at the time of closing.
No Closing Costs Most lenders do not charge closing costs for an equity line.
Compare the lenders that are charging costs to those that are not and see how the terms differ from one another.
You may pay a slightly higher rate for the equity lines that do not have closing costs but this may be more beneficial than paying thousands of dollars in upfront costs.
Periodic Rate Cap Since equity loans usually have a variable rate it is important that there is a periodic rate cap.
A periodic rate cap will keep your interest rate from jumping too high from one adjustment period to another.
Most periodic rate caps are 2%, so if the interest rate adjusts every 6 months, then the rate will not adjust up or down more than 2% every 6 months.
Lifetime Rate Cap Since equity loans usually have a variable rate it is important that there is a lifetime rate cap as well.
A lifetime rate cap will keep your interest rate from jumping too high over the entire life of the loan.
Most lifetime rate caps are 5%, so if you have the loan for 10 years, then the rate will not adjust up or down any more than 5% above the original interest rate that was established when the loan was established.