Questions to Ask When Applying for a Home Equity Loan

Summer time is fast approaching and many people are now planning their perfect getaway. A stay in an over-water bungalow in Tahiti, an exciting safari in Kenya or bungee jumping in New Zealand are just a few of many great vacation options. But unfortunately they come with a high price, and the reality of financing their dream summer vacation keeps many people dwelling in the winter blues.

For many people, the way out of this dilemma is a home equity loan to finance their dream summer vacation. Traditionally, home equity loans are used to finance home improvement projects. But this type of loan has become a popular option to finance other items, such as unexpected medical bills, cars or college expenses. Many people also use home equity loans to consolidate credit card debt because home equity loans generally have lower interest rates  than credit cards.

But no matter if you dip into your home’s equity to upgrade your old-fashioned kitchen, to pay for your daughter’s tuition fees or to cruise through the Caribbean, it is important to ask the right questions when getting a home equity loan.

To help you get the best deal based on your financial situation and your goals, here are a few questions that you should ask your potential mortgage company:

Fixed mortgage rate vs. adjustable mortgae rate. If you consider a home equity loan with a fixed interest rate, make sure to inquire about penalties in case you decide to pay off the loan before the term ends. With an adjustable rate it is wise to ask how often the lender adjusts the rates, what margin they have above the index (in most cases it is based on the Wall Street Journal prime), and if there is a cap as to how high the interest rates can rise.

Make sure you know all about the fees. From appraisal fees to closing fees - home equity loans often involve various fees. Inquiring about these fees before signing can save you from a bad surprise.

Ask about discounts. Taking advantage of promotional interest rates and discounts for automatic payment can help you save a lot of money.

Bahamas anybody?

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