HELOC – Not always bad!

A Home Equity Line of Credit can be good or bad depending on how you use it. There are 10 things savvy home owners should look for when considering a Home Equity Line Of Credit:

1) No HELOC application fee or at least the fee should be refunded at closing. If your lender assesses an application fee, make sure it’s refundable at closing.

2) No home loan appraisal or closing costs – there are plenty of no-cost options available that you shouldn’t have to pay a HELOC appraisal fee.

3) No HELOC account maintenance or check-writing fees – Lenders already make money when you write checks (read – borrow) on the home equity credit line. If your lender tries this, dump him!

4) No “usage” fees – Apparently, HELOC lenders don’t approve of the notion that a homeowner may want to have a HELOC as an emergency “reserve” account. Definitely look for a lender that does not charge this type of fee.

5) Variable APR equal to or near the prime rate (adjusted quarterly) – Interest charged on the balanced borrowed should be the only cost involved with a good home equity credit line!

6) Periodic cap on interest rate changes (the amount that the rate can be changed at one time) – Look for a Home Equity Line of Credit that adjusts quarterly (rather than monthly) in increments of 0.5% or less.

7) Lifetime cap on rate increases (the amount that the rate can be adjusted over the loan’s life) – You’ll want to find a HELOC loan with a lifetime rate cap that you can live with. Ask your loan officer to clearly spell out the “worst case” scenario for HELOC rate increases!

Ability to convert to a fixed rate loan – When rates do rise, people often get skittish about their variable-rate debt. A useful feature to look for in a HELOC loan is the ability to convert the line of credit to a standard fixed-rate, fixed-term home equity loan.

9) Interest-only payments allowed – Get this option but only use it if you need to! It’s always best to pay down the principle, not just interest!

10) Unrestricted ability to repay principal without penalty – You should be able to pay off the Home Equity Line of Credit at any time without paying extra!

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