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More About Home Equity Lines of Credit...


We've discussed the basics of home equity lines of credit (HELOCs) here.

The major disadvantage of the HELOC is its exposure to interest rate risk. All home equity lines of credit are adjustable rate mortgages (ARMs), but they are much riskier than standard ARMs. Changes in the market impact a HELOC very quickly. Most standard ARMs have rate adjustment caps, which limit the size of any rate change while home equity lines of credit have no adjustment cap.

Getting a home equity line of credit is not much different from getting a mortgage. When you arrange the line of credit, you will have to pay many of the same closing costs as you did with your initial mortgage.

When you close on your home equity line of credit, you may have to pay an application fee, appraisal fee, attorney's fees, title search, and points. As with a mortgage, negotiating these fees is important because ultimately the cost of your home equity line of credit is increased by these fees.

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Ask the home equity loan company for a detailed list of the costs you are being asked to pay so you can better determine what to negotiate. Then, ask for one or more of the fees to be eliminated or reduced. (Ideally,the best home equity loans or a HELOC have no points, no closing costs.)

Your HELOC might be subject to other continuing or ongoing monthly fees so ask about ALL fees before taking the line of credit. Typical fees associated with a home equity line of credit include membership fees and transaction fees. These fees, as with the other closing costs, will increase the amount you owe.

Just as you would shop around for mortgages and other loans, you should also shop around for home equity lines of credit that have the terms to suit you best. Terms to evaluate would include the interest rate you are charged, additional or associated fees/costs, as well as repayment terms. Assess each of these factors to make a decision on which home equity loan company you choose.

If you have a poor credit rating, consider shopping for a mortgage bad credit rating loan as well as home equity lines of credit. You may find that one is more suitable than the other.











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