When looking for a Home Equity Line of Credit, there are several factors that you need to consider. These include the terms of repayment, interest rate and other fee etc..
Let us take a look at the major factors that you should consider when thinking about taking out a home equity line of credit:
- Application Fee: Ideally there should be zero application fee while taking out a home equity line of credit. However, if you are not able to get a deal with a zero application fee, make sure that the fee you are paying is refundable when the line of credit closes.
- Interest rate: If you are being charged a variable APR, then that APR will be expressed as prime plus 2% or prime plus 3% etc. This means that the lender will charge you two or three percent over the prime rate. Look for the lowest interest rate possible.
- Appraisal fee: In order to determine what is the right price for your house, the lender will need to appraise your property. Lenders should absorb this cost and you should not be required to pay any fee for this.
- No usage fee: No usage fee means that if you are not using your home equity line of credit, you end up paying a fee to the lender. This is not a good thing at all and you should avoid this completely
- Maximum APR: If you are availing a variable APR, then your bank will have the option to increase the APR as the prime rate increases. You should check whether there is a cap on this at all. Ideally there should be a cap on the maximum APR that you can be charged.
- Repayment Terms: Examine the terms of repayment carefully, some lenders allow you to make payments only towards the interest while the home equity line of credit is active. This is not a good thing and you should be able to repay principal also. Additionally some lenders put a penalty on borrowers who pay extra principal. You should bargain to get this penalty waived. If it is not waived, then you should at least be aware of it and try to reduce it as much as possible.
- Introductory Rate: Like credit cards, home equity line of credits also come with an introductory rate. Be sure to ask for an introductory rate on your loan.
- Closing costs: There are several costs that are associated with closing a line of credit. You need to be aware of the various options available to you. You can also go in for a plan which has no closing costs, but that has other riders attached. There are also plans that deduct the closing costs from your line of credit. Explore your options and choose one that suits you the most.
Since your house is one of your biggest assets, any decision that puts your house on the line needs to be taken carefully. Use these parameters to select the best home equity line of credit option for you.