| There is no doubt about the fact that a home equity | | | | • How much do I need to pay in points? |
| loan offers several key advantages. However there | | | | Usually points are closely related to the interest rate on |
| are also a multitude of home equity loan lenders out in | | | | a home equity loan. The higher the payment in terms |
| the market today. What is the best way to choose | | | | of points, the lower is the interest rate. |
| the home equity loan that's best for you? | | | | • What are the applicable fees? There are |
| Essential criteria | | | | various types of fees included in a home equity loan |
| If you are a first time borrower of a home equity loan | | | | such as appraisal fee, broker fee, document |
| it is imperative that you have a checklist of essential | | | | preparation fee, funding or lender fee, application or |
| questions that you need to ask each and every lender. | | | | loan processing fee, underwriting or origination fee, etc. |
| The answers to these questions will provide a valuable | | | | Knowing the applicable fees can help you know what |
| reference to base your comparisons on. | | | | to expect in the monthly statements of the home |
| • What's the interest rate? Knowing this is | | | | equity loan. Plus it will also help manage and plan your |
| crucial. The interest rate will determine the monthly | | | | finances better. |
| payment you will need to make. You also need to | | | | • What's the duration of payment? The time |
| know if the interest rate is of a fixed or adjustable | | | | period within which you need to pay off your home |
| nature. Fixed rate implies that the monthly payments | | | | equity loan will determine to a large extent the state of |
| will remain constant, while an adjustable rate implies | | | | your current finances. Having a longer duration means |
| that rates will fluctuate depending on market conditions. | | | | that you can space out the installments better and |
| • In adjustable rate, when will rates change? If | | | | thus save more. |
| your interest rate on the home equity loan is of the | | | | • Is there a balloon payment? Many times a |
| adjustable variety, you need to know three things: | | | | home equity loan will require you to only make |
| when the rate is going to change (that is under what | | | | payment towards the interest every month. Then at |
| conditions), how frequently will the rate change and | | | | the end of the loan payment duration, the entire |
| what's the average percentage by which the | | | | principal amount will need to be paid by you in full. This |
| adjustable rate will change. | | | | is also known as balloon payment and can significantly |
| • What is the Annual Percentage Rate or | | | | eat into your expenses when it comes. To avoid this, |
| APR? The APR on the home equity loan will | | | | it's best to ask the home equity loan lender if such a |
| determine the yearly payment you will need to make | | | | condition exists. This will allow you to be prepared for |
| towards this. | | | | a financial crisis later on. |