Home Equity Credit Line
Whether it's a home equity credit line or loan, there are several items you should be aware of before proceeding. Remember that you aren't required to apply for a line of credit from the lender who holds your mortgage; shop around with various lenders using the following criteria:
Fees. One of the hardest things to research when looking into loan programs. The higher the fees your are required to pay, the higher the overall price you are paying for that loan. While many lenders will negotiate the fees for an equity line of credit, if you are in debt it will be harder to get them to budge. Other lenders will build the fees into the loan, so don't be lured by ads that say "No Fees!". One way or another, there are fees associated, and you need to be aware of all of them before you sign.
Annual percentage rate. This is the amount of money you will pay over the year towards the loan. This figure includes all costs, including any fees you might have missed.
Monthly periodic rate. This is also known as a finance charge, and represents the interest rate you'll pay each month on your home equity credit line.
The total monthly payment. This number is what will come out of your pocket every month. If you fall behind, many HELOC's will increase the monthly periodic rate, and you'll pay more each month. Discuss this possibility with the lender beforehand to avoid any surprises.
The term of the loan. Along with the monthly payment amount, this is the most important metric. The longer the loan, the more interest you'll have to pay. If your term is short but carries a monthly payment you can't afford, you'll sink deeper into debt. Balance the two the best you can.
Balloon payments; will they burst your bubble? A balloon payment is large one time payment due at the end of the loan's term. If you are in debt, a balloon payment won't help you much; you are better off paying the monthly rate and pay extra when your expenses are lower than expected.
Once you have this metrics down, you can easily compare several lenders at a glance and choose the right home equity credit line for you!
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