|
Finding the right type of loan to suit your needs can
be a bit tricky. It involves choosing between a home equity
line of credit, a standard home equity loan, or some other
type of loan that does not use your house as collateral.
Because every situation is different, there is no standard
"one size fits all" answer. Instead we will
give some guidelines that will help you make the right
choice.
Interest
Getting a good interest rate is very important
when applying for your loan. This is a great factor to
base your choice on. It affects the amount of your monthly
payment as well has how much you are paying for the loan.
Generally, getting a fixed interest rate is a good idea.
Variable rates can increase based on market trends or
are scheduled to increase after a certain number of months
or years. If you do choose a variable rate, be sure that
you fully understand what factors can affect the rate
and how it will affect your payments.
Try to avoid terms in your loan contract that require
you to pay penalties or increased interest rates becuase
of late or missed payments. (Click
for more information on terms to avoid)
The interest rate differs on each loan type. Standard
second mortgage home equity loans generally have fixed
interest rates and fixed payments. On the other hand,
home equity loan credit lines have more flexible interest
rates that can be affected by many factors.
Do the math and see what rates will benefit you throughout
the term of your loan. Don't be intimidated by the numbers,
and never be afraid to ask your loan officer questions.
Because of the risks involved, getting the right loan
is very important.
Taxes
Taxes may apply to your loan depending on where
you are located and the type of loan you take out. The
FTC says that home equity credit line has less taxes involved,
but these terms are still dependent on your location.
Needless to say, you should choose the option that is
more suitable for your situation.
Payments
Your monthly payments are another key factor
that should be considered when getting a home equity loan.
You need to take into account your monthly income, and
make sure you are able to afford the monthly payments.
Usually a home equity lender will not grant you a loan
if you do not meet the necessary requirements, but a fraudulant
lender will.
Home equity credit line payments are based on the amount
of money you spend from the credit line. This method allows
you some control over your monthly payments but it can
become unpredictable if you spend too much. The second
mortgage home equity loan payments are usually fixed and
are easier to budget.
Closing Costs
Your closing costs will differ in amounts based on a lot
of different factors. These factors include your interests
rate, the inclusion or exclusion of certain contract terms,
or the existance of a balloon payment. It is not generally
a good idea to make your descision based on the amount
of your closing cost alone.
You should try to find a middle ground where you can
afford the closing costs without having to pay for it
in the long run. The trick is to be sure to make your
own calculations and negotiate a payment that is acceptable
for you.
Home Loan Resources Index
|
