?? equitity line of credit on a home,,what problems can pop up?

Question

I'm thinking about getting line of credit on my home,,which is paid for. I talked to a lending instution,,I would take out approx $25,000 line,,,plan to use about $15,000 for home improvement. Interest would be at about 7%.
Ok,,what problems can come up,,I know this can't be this easy. I realize,,yes I pay it off,,ok,,but what added fees are there? I new to this line of credit thing.

Answer 1

Now your home is paid for and you need some money. Heloc is great when you plan to pay off the loan before it goes really up. Im assuming your loan at 7% is an adjustable heloc, correct? If so, it will go up. Now if its fixed, then no worries - helocs also have no prepay and, if there is its usually a small fee around $250-500. There could be added fees if you continue to ask for a credit increase, therefore, apply for a higher credit line in case of unanticipated costs to your home improvement.

I must ask if all your wealth is locked up in your home equity? Truly not a wise thing to do in case something happens to you - (health, job, litigation, emergency) or your home (fire, flood, act of God). Use some of the
equity to leverage against things you cant control and can control to further your financial security.

Answer 2

Most home equity lines of credit are adjustable rate loans based upon the prime rate of interest which is regulated by the Federal Reserve Commission.

If the prime rate increased greatly your payment could increase greatly to match that increase.

In most cases, the payment is interest only on the funds as they are used. The average line of credit has an initial draw period and a repayment period requirement. Many will have an early payoff penalty, often a couple of hundred dollars if you payoff the line and close it in less than 3 years.

Fees involved could include an appraisal, title report, credit report, closing fee, and recording and, possibly, an origination fee.
These will depend upon which lender you choose. Shop carefully, many lenders offer to pay all of the costs for you in order to initiate the relationship.

Answer 3

As far as I know, the equity loans on a house is pretty cut and dry. You use and pay because if you don't they get the claim to your home. The benefit is that the interest is deductible on your income tax. You can use the proceed for anything you want even if it has nothing to do with the house. (This is how many people can afford expensive cars, start a business, etc.)

But, if you're feeling unsure about it, just ask the lending agent as many questions as you need and want to. They should be very helpful.

Answer 4

mazziatplay's answer is right on!

A few years ago, when everyone was looking for a home equity loan, the banks were stumbling all over themselves trying to get your business. Many of the fees were waved. And there were a lot of them!

So check around and ask what the fees are. Make these guys bid for your business.

If you have great credit now then use that to your advantage.

Answer 5

Refinance the house. Since it is paid for the interest rate will be lower and unles syou plan to keep pulling out equity it would be a better fit. HELOCs are typically tied into the prime rate which has climbed 17 consecutive times. If you have more questions let me know. You should be able to get under 7 on a cash out refi.

Answer 6

Why not just save the money... How long could it possibly take to save 15K without a mortgage payment?

I'll tell you what can happen... you borrow 15K on your home, then you borrow more, then you borrow more, then you're broke. If not, you get to send the bank 7% for years and years... If it wont take years and years, then just save the money and pay cash. it's cheaper..