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If you need to raise funds, there are two main types to choose from. A secured loan that requires collateral to support (subsidize) a debt. And unsecured loans, not that. Home equity loans fall into the previous category, and your home will act as collateral.
There are many houses lying on the line. Is a Home Equity Loan a Good Idea? Compare and consider the advantages and disadvantages.
Pros and Cons of Home Equity Loan
“Home equity loans offer fixed-rate stability and consistent monthly payments, making them perfect for big expenses like home improvements. However, the loan uses your home as collateral, meaning missing payments will lead to foreclosure. “It’s all about balancing liability and profits.”
Are all home equity loans fees?
Most lenders charge a home equity loan fee. Expect to probably pay the following:
- Origination fee: The amount depends on the lender and the amount you owe.
- Evaluation fee: This usually costs between $300 and $800.
- Credit Report Fees: The lender will charge a nominal fee to raise the credit report to a credit report of $10 or up to $100.
- Document or submission fee: According to the HomeBuing Institute, the average county record fee at closing is $125.
- Title Price: As a home serves as collateral for a home equity loan, lenders will perform a title search to determine whether an existing lien or property has a claim. This fee can range from $75 to $200 depending on the location. Some would cost as much as $450.
- Discount points: Some lenders can pay an advance fee known as “points” to lower interest rates. Each point is 1% of the amount borrowed.
“Lenders’ shopping is a wise move to get the best deal on prices,” says Bell. “Starting with your current lender is beneficial as it may offer special rates to be a loyal customer. And don’t hesitate to negotiate. Lenders often have some flexibility and demanding lower rates and better terms will save you money in the long run.”
Home Equity Loan vs Helock: What’s the difference?
Both Home Equity Loans and HELOC (short for Home Equity Line) allow your property to act as collateral for your debt and borrow against your home equity. But they work differently.
When you take away your home equity loan, you will receive the funds in a lump sum. In contrast, HELOC is a spinning credit line like a credit card, so you withdraw money whenever you need it. HELOC interest rates typically fluctuate with market rates each month.
With a home equity loan, the monthly repayment amount remains the same as the life of the loan (usually 10-30 years). In contrast, HELOCs have a draw period of the first five to ten years, if they can take away money if necessary, and the options only pay off interest. After that, the repayment period begins. The repayment period generally lasts between 10 and 20 years. During this time, you will need to pay back the amount you borrowed and the interest. You can no longer withdraw funds.
Home Equity Loan Alternatives
Eligibility for a Home Equity Loan can be difficult. If you don’t think you can get it, or simply don’t feel it’s the best choice, look into these other options.
- Cash-out refinance: Refinancing your cash out involves replacing your existing mortgage with a large amount of new loans. You will receive a ready money difference (based on your home equity). Key benefits: There is one payment per month rather than two.
- Personal loan: Personal loans do not require collateral and allow for faster acquisition. However, it is usually not possible to rent. You also need to pay it back faster. And you will almost certainly pay a higher interest rate compared to a residential equity loan.
- Reverse mortgage: For those over 62 (or 55 with some products): A mortgage that lenders pay you monthly. However, the principal and additional benefits must be repaid when the borrower dies.
Next Step: Get a Home Equity Loan
A variety of financial institutions offer home equity loans, ranging from national banks to regional credit unions. It can also be used through mortgage companies and online lenders. The application process is similar to applying for a mortgage. You will need to submit your financial and employment information. The lender will value your home, determine its value, and based on it, there is the fairness you have to borrow.
It is recommended to get at least three quotes from lenders and shop. Check out online ratings such as Bankrate Home Equity Lender Reviews for suggestions from friends/co-workers, as well as starting with your current bank.
