Choosing The Best Plan for You - Always do ample research before going into a lender so that you can scrutinize all the details of the plan to your advantage. There are various sources you can turn to – the internet, books, friends and family who have a home equity line.
- When you are seriously considering a home equity line of credit, please take a few moments to think about:
- Your current ability to make the minimum payment.
- Your future ability to make the minimum payment.
- The amount you wish to draw on – if this is a small one time amount, you should consider alternative options because the additional fees in order to obtain a home equity line of credit might not be worth the lower interest rate. A typical credit card does not charge any of the aforementioned fees, however it IS a higher interest rate, but if your amount is insignificant and you plan to pay it off relatively quickly, a home equity line might not be beneficial due to the additional costs.
- If you sell your home, you will need to pay back the mortgage and the home equity credit line. If you plan to sell the house in the short-term future, consider all the additional fees you will need to pay in order to obtain a home equity line of credit.
- Interest Rates – Although the interest rate is relatively low when compared to credit card borrowing, these rates are not fixed. Home Equity Lines of Credit have variable interest rates depending on the fluctuation of the index. The rate is based on the current index (prime rate published in newspapers, Treasury Bill rate, etc). The lender takes this index and adds on the margin (the amount the lender earns off of borrowing from you – the index is their cost of borrowing to lend to you) – usually 2% depending on the lender.
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