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Choosing A Home Equity Mortgage Product
from:In the home equity mortgage industry, when we say home equity mortgage product, we refer to two specific loan vehicles: the home equity loan and the second mortgage loan. Both however, are under home equity loans. To avoid confusion, we have to know some important terms. There are two types of Home equity loans: (a) home equity line of credit and (b) the fixed-rate loan. Usually, the home equity line of credit is often referred to as the home equity loan or simply HELOC while the fixed-rate loan is often referred to as the second mortgage.
Choosing home equity mortgage products:
i) When you apply, you may or may not have enough information about the things you should take into account in the processes of purchasing a loan. So here are the important factors that can influence your choice when purchasing a home equity mortgage.
ii) APR or the Annual Percentage Rate. As a purchaser of the loan, the APR is a great help. It will enable you to know, compare, and select the different home equity products available. According to the Truth in Lending Act's Regulation Z, the lenders are required to disclose the APR in all their home equity products. This includes interest rate, points, costs of credit, and other changes.
iii) Tax Deductible. There are specific exclusions and limitations in this provision. Nonetheless, the products are tax deductible provided that the loan would improve your property or home.
iv) Term. Term is one of the major considerations you should take and you should carefully look into when taking equity loans. You should only take the terms you know you can handle. Usually, you can choose from 3-20 year-term for home equity loans while the credit lines go from 5-20 or even 30 years. Either short or long term loans, both have advantages and disadvantages. Some lenders allow low monthly payments but big payments at closing. Some also provide high principal and interest rates with low final payment.
vi) Interest Rates. When you take any loans, interest rates is the most expensive part of it. Not only you would pay the big amount of your equity loan, you should also pay the interest that would depend on your credit score, your equity, and the term you are taking. Generally, interest rates are similar on both fixed-term and home equity line of credit. Take note that fixed-rate loan and variable rate are different. The former has a uniform interest rate throughout the term while the latter, interest rate will change depending on a specific economic indicator.
In addition to asking your lender about the interest rate, you should also ask:
a) Foreclosure. If the debt reaches the default status (meaning, the borrower fails to remit monthly payments), whether a home equity loan (HELOC) or a second mortgage, the lender can exercise his power to foreclose the property. Still, the foreclosure period depends from state to state but generally, it runs within the period of 2-18 months. Knowing the foreclosure process and conditions are vital before taking a loan. This can save your house as well as all your troubles.
b) Right of Rescission. In case you want to cancel your loan within 3 days for any reason, the Truth in Lending Act gives you the power to retrieve all the amounts you pay to the lender. Learning and asking this provision is critical particularly on the borrower since he will benefit on this.
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