If you really want to find out how much home equity loans cost, you need to look at the associated charges as well. This includes closing costs and pointing costs, for instance. In fact, the Federal Trade Commission (FTC) explains this in detail to people considering home equity lines of credit, so that they don’t find themselves facing nasty surprises. If you are comparing loans, therefore, you need to consider all those costs.
Costs to Think About
Some of the costs you need to think about if you really want to get a clear picture include:
- The application fee, which is payable to the lender and used to check your debt-to-income and to perform your credit check. These two factors are important to find out whether you’re suitable to receive credit at all.
- The appraisal fee, which is used to determine what the value of your property is and whether you are able to get a line of credit. Appraisal fees can be very expensive and should therefore be a main point of consideration.
- Up-front charges, which may be needed to create an account. Different lenders have different charges, so this is again something to consider.
- The closing costs, which have to be paid just as you had to pay them when you purchased your home. These can be considerable and the FTC specifically warns people to factor those into their overall cost calculations.
- The interest rate, which will determine just how much you will actually pay back on your loan. This creates a more complete picture of the actual price of the loan.
- Account fees, with continuing fees often being associated. This includes annual membership fees, maintenance fees, and transaction fees. Again, these vary between lenders, so do compare those.
If you find a home equity loan that has very low interest rates, it is often because all the other costs are much higher. Hence, make sure you don’t fall for the dangling carrot instantly, but that you actually compare what you are offered.
Home equity loans are incredibly useful lines of credit for a variety of different situations. However, you also have to be realistic in as such that they are secured against your largest asset: your home, and you need to make sure that you don’t risk losing it. These types of loans are quite easy to apply for and acceptance criteria are not very stringent. Hence, it can be tempting to jump in without really knowing what you are getting yourself in to.
Always speak to a financial advisor before agreeing to take out a home equity loan and spend a significant amount of time comparing your different options. This will make sure that, if you do decide to borrow against your home, you do it for the right reasons and with full awareness of what you will pay back, how, and when. Always be a clever consumer, in other words.