Five Things to Consider When Shopping for a Home Equity Loan
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Five Things to Consider When Shopping for a Home Equity Loan
Author:Ari Socolow
on January 30, 2011
- modified on September 10, 2017
Before you rush to apply for a home equity loan, you will want to give serious consideration to how you intend to use the funds, since you are using your home as collateral.
Before you rush to apply for a home equity loan, you will want to give serious consideration to how you intend to use the funds, since you are using your home as collateral. To assist you in making the right decision, here are some potential risks you will want to be aware of:
Know your upfront costs. There may be costs for taking out a home equity loan. By comparing several lenders' rates and fees, you can make a better decision. Do not be afraid to question your lender about a fee you do not understand.
Getting a home loan is not temporary. While qualifying for the funds you need may be easy, taking on a long term payment could be detrimental to your financial goals. Replacing one debt with another may not be the best solution.
Beware of the balloon payment.Obtaining a low-interest rate home equity line of credit (HELOC) may require making a balloon payment at some point in time. Unless you decide to refinance, take out another loan, or sell your home before the payment is due, you may have to pay off the balance on your loan.
Be careful not to overspend. Since a home equity line of creditacts like an open line of credit you may be tempted to use your access card or write a check each time you need an infusion of cash. You might be better off saving these funds for large purchases. It is always best to have a goal and a repayment plan that works for you.
Beware of the maximum loan-to-value. Most financial institutions will let you borrow up to 80% of the loan-to-value (LTV) ratio of your home less any outstanding mortgage payments on your property. Some lenders may offer 85% or 90% LTV but those can come with higher rates. Always ask for their best offer. Be careful not to max out your equity, in case home values decrease.
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
Conditions… Variable APR of Prime minus 1.01% in all states. Min loan amount $10,000. Max loan amount $200,000. 30-year term. Annual fee waived for the first year. See conditions for guarantee at thirdfederal.com.
Third Federal rate are typically 20% lower than other leaders
Guaranteed Lowest Rate
No closing costs, prepayment penalties, or minimum draw requirements
Rates/terms are subject to change. All offers of credit are subject to credit approval. Applicants may be offered credit at higher rates and other terms. Property insurance (including flood insurance, if applicable) is required. HELOCs not offered in Texas. Membership at FourLeaf is required by opening a minimum $5 share account.
Rates shown are based on primary residence, minimum initial draw of $25,000 at account opening, monthly payments via automatic transfers from a FourLeaf checking/savings account, and borrower(s) inputs for credit score and Combined Loan-to-Value.
If borrower(s) qualifies for an intro rate, the intro APR is fixed for 12 months. After, standard APR is variable based on the U.S. Prime Rate, plus a margin, and is subject to increase. To obtain an intro rate, borrower(s) must meet credit/loan program requirements, including (but not limited to): 1) maximum CLTV of 75%, 2) minimum credit score of 720 3) initial draw of $25,000 and maintain this balance for 12 months, 4) monthly payments via automatic transfers from a FourLeaf checking/savings account, and 5) have not had an intro rate within the past 5 years. Loan amounts over $500,000 are not available for the intro rate.
The standard APR is variable based on the U.S. Prime Rate as published in the Wall Street Journal, plus a margin (if applicable), and is subject to increase after consummation. The current standard APR ranges from 7.50% - 18.00% as of 4/16/2025. Not all applicants will qualify for the lowest rate. The minimum floor APR is 3.25% and maximum is 18%. Prime Rate as of 4/16/2025 = 7.50%. Closing costs for the first $500,000 will be paid by FourLeaf but must be repaid by the borrower(s) if the HELOC is closed within first 36 months of account opening. Fees generally range between $500 - $15,000. Borrower(s) will be responsible for mortgage-related taxes and title insurance costs on the line amounts over $500,000. Fees generally range between $500 -$60,000.
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