subject: Are There Any Extra Costs When Getting Home Equity Loans? [print this page] In some situations, taking out home equity loans can be the solution to all of someone's financial problems. After all, the reason homeowners spend years building equity is so that it can work for them when they need it most. However, it is important to be careful when taking out a loan against a home because it is possible that there will be extra costs.
In general, when taking out an equity loan, it is a good idea to stay away from banks. There is a loophole in the Real Estate Settlement Procedures Act that does not require banks to disclose the profit margin on a loan. In short, this means that they are not required to play by the rules and nobody should sign such important documents without full disclosure.
When taking out an equity loan, it is important to look very carefully at the interest rates. In some cases, brokers will mark up interest rates so that they make an extra commission at the expense of the borrower. This unnecessary markup leaves the borrower with less cash at the end of the month while the borrower suffers. The way to avoid this is to find an honest broker, because they do exist.
There are many miscellaneous fees that can be part of an equity loan known as packing. These are fees that do not show up until the final loan contract. This may be credit insurance, or any number of other unnecessary charges. Be sure to read over all copies of the contract carefully and understand exactly what charges are going to apply in order to avoid being blindsided by this type of fee.
Another thing that homeowners need to look out for when taking out an equity loan is something known as a balloon payment. If someone is in danger of foreclosure, they may be offered a new loan with a lower monthly payment. They should check the terms carefully because the lower monthly payment may only cover the interest. At the end of the loan term, they will still owe the entire principal balance and will be expected to pay it in one balloon payment or risk foreclosure once again.
It is possible to get home equity loans from an honest broker that will not include any hidden or unnecessary fees. The borrower, however, must be conscious of what they are signing and be sure to read all of the fine print. Failure to do so could lead to unaffordable monthly payments and, eventually, foreclosure.
Are There Any Extra Costs When Getting Home Equity Loans?
