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Top Seven Things to Know Before Taking Out a Mortgage Home Equity Loan
Author David Schneider | Nov 19,2007
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A mortgage home equity loan occurs when a homeowner borrows money against home equity. The loan amount is subject to the value of the home, minus the outstanding balance on your current mortgage. Mortgage home equity loans are a great way for homeowners to take advantage of home equity for home improvement, college tuition, medical bills and other large expenses. To answer your questions, get acquainted with the top seven things to know before taking out a mortgage home equity loan.
No. 1: Your Home is Collateral on a Mortgage Home Equity Loan
A mortgage home equity loan is pretty easy to acquire. Why? Your home is literally on the line. Lenders are relatively worry-free, knowing that their investment is secured through your home. Consider it good motivation for making payments on time.
No. 2: Check Your Credit Score Before Taking Out a Mortgage Home Equity Loan
Your credit is a crucial factor in determining the mortgage loan packages you will be offered. Before applying for a mortgage home equity loan, obtain a copy of your credit reports from each of the three major credit bureaus nationwide: Experian, Equifax and TransUnion. Carefully examine your credit reports and take whatever necessary action to raise your credit score.
No. 3: Home Equity Loan or Home Equity Line of Credit?
There are two very different forms of mortgage home equity lending. The first, a home equity loan, bears similarities with your first mortgage. You receive a large sum of money based on your home much equity and follow a repayment schedule, usually around 15 years.
A HELOC, or home equity line of credit is like a large credit card. A HELOC is a revolving account with a credit limit along the same lines of a traditional home equity loan. You have a draw period, typically ten years. During this period, you write checks as needed and make payments on the interest.
At the end of the draw period, you can pay the principal and remaining interest in one lump sum, or take out a loan and follow the repayment schedule. A HELOC may be a great choice for borrowers who are unsure about much is needed for a loan. Those with great money management skills can save in the long run.
No. 4: Mortgage Home Equity Loans: Adjustable Rate and Fixed Rate
Home equity loans may be offered with a fixed rate or adjustable rate. A HELOC most often comes with an adjustable interest rate. Be prepared for potential surprises following the low-rate offered by the introductory period.
No. 5: Mortgage Home Equity Loans: Repayment Schedules and Fees
Financial institutions present loan packages differently. Interest rates, closing costs, additional fees and the repayment schedule vary significantly. Compare terms and fees individually to determine where cost originates. A HELOC may include transaction fees and annual membership fees, in addition to other fees.
No. 6: Beware of Scams
Be careful when shopping for a home equity loan. Scams abound in every professional field, including the industry of financial lending industry. Beware of the pushy salesman and terms that seem to good to be true.
Falling prey to a scam can result in foreclosure. Look out for interest rates in relation to points, fees that add up to more than five percent of the principal and lengthy, expensive prepayment penalties. Ultimately, a mortgage home equity loan that doesn’t save you money may not be worth it.
No. 7: Shop Around for a Mortgage Home Equity Loan
A variety of loan products are available from different financial institutions. Shop around and research mortgage home equity offers online. A quote comparison site condenses the legwork required for locating the best deal. Find a site that allows you to access several offers, free, instantly and without obligation.
You may want to compare offers online with those from a local credit union, commercial bank, agent or broker. The lending industry is a competitive market. By all means, negotiate for the best deal.
A mortgage home equity loan occurs when a homeowner borrows money against home equity. The loan amount is subject to the value of the home, minus the outstanding balance on your current mortgage. Mortgage home equity loans are a great way for homeowners to take advantage of home equity for home improvement, college tuition, medical bills and other large expenses. To answer your questions, get acquainted with the top seven things to know before taking out a mortgage home equity loan.
No. 1: Your Home is Collateral on a Mortgage Home Equity Loan
A mortgage home equity loan is pretty easy to acquire. Why? Your home is literally on the line. Lenders are relatively worry-free, knowing that their investment is secured through your home. Consider it good motivation for making payments on time.
No. 2: Check Your Credit Score Before Taking Out a Mortgage Home Equity Loan
Your credit is a crucial factor in determining the mortgage loan packages you will be offered. Before applying for a mortgage home equity loan, obtain a copy of your credit reports from each of the three major credit bureaus nationwide: Experian, Equifax and TransUnion. Carefully examine your credit reports and take whatever necessary action to raise your credit score.
No. 3: Home Equity Loan or Home Equity Line of Credit?
There are two very different forms of mortgage home equity lending. The first, a home equity loan, bears similarities with your first mortgage. You receive a large sum of money based on your home much equity and follow a repayment schedule, usually around 15 years.
A HELOC, or home equity line of credit is like a large credit card. A HELOC is a revolving account with a credit limit along the same lines of a traditional home equity loan. You have a draw period, typically ten years. During this period, you write checks as needed and make payments on the interest.
At the end of the draw period, you can pay the principal and remaining interest in one lump sum, or take out a loan and follow the repayment schedule. A HELOC may be a great choice for borrowers who are unsure about much is needed for a loan. Those with great money management skills can save in the long run.
No. 4: Mortgage Home Equity Loans: Adjustable Rate and Fixed Rate
Home equity loans may be offered with a fixed rate or adjustable rate. A HELOC most often comes with an adjustable interest rate. Be prepared for potential surprises following the low-rate offered by the introductory period.
No. 5: Mortgage Home Equity Loans: Repayment Schedules and Fees
Financial institutions present loan packages differently. Interest rates, closing costs, additional fees and the repayment schedule vary significantly. Compare terms and fees individually to determine where cost originates. A HELOC may include transaction fees and annual membership fees, in addition to other fees.
No. 6: Beware of Scams
Be careful when shopping for a home equity loan. Scams abound in every professional field, including the industry of financial lending industry. Beware of the pushy salesman and terms that seem to good to be true.
Falling prey to a scam can result in foreclosure. Look out for interest rates in relation to points, fees that add up to more than five percent of the principal and lengthy, expensive prepayment penalties. Ultimately, a mortgage home equity loan that doesn’t save you money may not be worth it.
No. 7: Shop Around for a Mortgage Home Equity Loan
A variety of loan products are available from different financial institutions. Shop around and research mortgage home equity offers online. A quote comparison site condenses the legwork required for locating the best deal. Find a site that allows you to access several offers, free, instantly and without obligation.
You may want to compare offers online with those from a local credit union, commercial bank, agent or broker. The lending industry is a competitive market. By all means, negotiate for the best deal. |
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