Negotiating Terms of Home Equity Lines of Credit
- By: Ask Bill
There are many ways to refinance your mortgage and one of them is the home equity lines of credit. You probably did not know that if you have been paying on your home for more than just a few years, you probably have a lot of money that you could actually use out of the very home you own. It is basically like getting a second mortgage but, instead of receiving the loan in one lump sum, you will be given a revolving credit line similar to that of a credit card. You may have the freedom to draw from the funds whenever and wherever you choose.
Home equity lines of credit are also technically a home loan. So you may have the option of obtaining the loan with tax deductible interest. Due to the fact that it is considered as a home loan, it is advisable that you remember you will still be putting up your home as collateral. If you continuously fail to make payments on your loan, you may be forcing your creditor to foreclose your home in order to recoup their losses. In order to get the best deal, you might want to brush up on your negotiating skills. It may not be easy getting creditors to give you more than what they initially offered but, with a little bit of knowledge and good negotiating know-how, you might be able to get more than you bargained for.
The home equity business can be quite competitive, in the sense that, lenders will race against each other to bring in more customers to their establishments. You may want to use this particular information to gain some leverage in your negotiations, by shopping around for potential lenders, instead of singling out one particular lender. Obtain information on the deals every lender can offer you and you might find that by sharing a little bit of that information with different lenders they are mostly likely to do their best to top the best offer you’ve received and give you the best deal. Some experts might be of the opinion that it is probably better for you to get your home equity line of credit from the same bank or lender of your first mortgage. It still would not hurt for you to shop around for other lenders and use the information on lower fees and better rates from other lenders, to negotiate the best deal from your current lender.
Most banks or lenders might offer you a very low introductory interest rate, in order to convince you to take up a home equity line of credit. However, the low interest rate is not going to stay that low throughout the duration of your loan. So you might want negotiate on the duration of the introductory interest rate. For instance, if they offer the introductory rate only for the first year, you may want to negotiate the rate to be maintained for two or three years. This all might depend on your negotiating skills and know-how. The introductory interest rate will rise after the introductory period is over. So it is probably wise for you to find out the highest interest rate that you could be charged throughout the life of your loan. It is called a lifetime interest cap. After all, you may not want to agree to a high lifetime cap if you are not sure you would be able to afford to pay such high interest rate when the time comes.
Another aspect of any home equity line of credit is the fees. Different lenders come with different fee structures. So you might want to be sure that the lenders you go to, disclose every single fee involved with the loan you are inquiring about. This is so that you will not be taken by surprise. All fees such as closing or appraisal costs, annual fees and prepayment penalty are negotiable. You may be able to get your lender to waive as many fees as possible. This is because sometimes the fees will be incorporated into your monthly payments along with your interest and you might end up having to pay more than you actually can afford to. It is therefore always advisable for you to check on the fees involved and if your lenders are reluctant or even refuse to divulge information on the fees, you always have the choice of walking out.
Negotiating a HELOC (Home Equity Line Of Credit) rate might sound slightly intimidating for you, especially because, you may not be an expert on the matter. But it is always wise for you to brush up on your knowledge on home equity loans and the basics of the rates and terms in order to arm yourself with the know-how of the home equity loan business to successfully negotiate your way for a better deal.
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