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Options are a great thing, especially when considering borrowing against the equity in a home or property. Not all lenders are going to offer the same packages and terms, and it really pays to compare home equity loans before signing anything.
How do you compare home equity loans? It actually varies from borrower to borrower, but a general comparison would take into consideration the following details:
• Variable or fixed rate
• How many years is the loan?
• What are the “up front” costs?
• Are there any prepayment penalties?
• What is the monthly payment?
With answers to such questions, a borrower can make a much more well-informed decision about which lender to use.
Variable and fixed rates will greatly affect the total amount paid to end the loan. For example, a homeowner who would like a set amount due each month may want to lock into a fixed rate equity loan. A person who knows they will probably not maintain the loan for a long period of time before paying it in full or refinancing it along with a first mortgage may want to compare home equity loans that offer a variable or adjustable rate. This is because they tend to be significantly lower amounts.
To accurately compare home equity loans the borrower must only look at loans that are extended for the same amount of time. It is unwise to select a bank because its thirty-year loan is so much less than another bank’s fifteen-year loan. Compare only loans of the same length, or relatively close, such as 25 and 30 years.
Many lenders offer discounted interest rates if the borrower is willing to pay some “points” against the loan. This means a small percentage of the total amount borrowed will actually be repaid at the closing. To compare home equity loans that offer such a discount against those that don’t will present an inaccurate picture. A single percentage point can drastically reduce the total amount paid over the life of a loan, and a borrower must make sure that all compared loans have the same terms.
When a consumer decides to compare home equity loans they should always make sure that those selected offer freedom from penalties if the loan is paid in full ahead of time. This is because such penalties will greatly increase the “total cost” of the loan and are particularly an issue with adjustable loans that are intended to be used for only a short period of time.
Ultimately, the “bottom line” approach used by many people to compare home equity loans is the total monthly payment. This should be easily affordable, but not require the borrower to repay an excessive amount more than what was originally borrowed.