Figuring Out the Cost of a Home Equity Loan

Home equity loans are a great resource for many homeowners that would like to borrow a large sum of money for important projects or investments such as an addition to their home, a new kitchen, college education for their children or to go on the vacation of a lifetime.While home equity loans are advertised frequently and usually look extremely attractive as a way to borrow money, before you decide to sign on the dotted line, make sure you know just how much it costs to borrow using this or home equity line of credit. Here are some things you should consider:They can be extremely attractive, but most people don’t realize that they usually have to pay two times for the privilege of using these products.
Most banks and lenders require the homeowner to pay fees and closing costs before they receive their loan and secondly pay interest for a set period of time.It is important to make sure you factor in all costs and interest charges when taking out home equity loans or a line of credit. It should be noted that one main advantage of a home equity loan or line of credit is that the interest paid is tax deductible in most circumstances (consult with your account). So if you are interested in borrowing a relatively small amount, lets say $10,000, you might save considerably using a home equity line of credit rather than a high interest rate credit card (provided that closing costs and fees are taken into consideration).You should also note that the length of the loan can determine how much the loan ultimately costs you. A $50,000 loan with a repayment of 20 years will always cost much more than the same amount with a repayment schedule of only 5 years. However, make sure you can afford a large payment each month.It should be noted that one of the differences between a home equity loan and a home equity line of credit is the type of interest rate. These have fixed interest rates, home equity lines of credit have variable rates that can increase or decrease depending. These factors can also determine the ultimate cost of taking out a home equity or line of credit. For the most part, you won’t know your exact costs until you sit down with your banker, but don’t feel obligated, make sure you shop around for the best rates and terms.