It’s important to remember that there is more to a low interest home equity loan than just the interest rate itself. That is an important factor to consider, however, obtaining the lowest cost loan, requires you to look at the entire picture. Lenders add other costs into loans, and when you add these costs into the cost of financing, the loan you thought was the lowest, may not be the lowest after all.
Determining loan cost
No loan is without added costs, least of all a low interest home equity loan. Costs that may be associated with an equity loan and add to the overall cost of the loan include, but may not be limited to, the following:
Application fee
Appraisal fee
Prepaid charges such as insurance and taxes
Document preparation
Title search
Mortgage origination fee
Individual lenders may have any combination of the above fees, or perhaps others that are not listed here. When considering the cost of the loan over the entire loan term, all fees that are paid or added to the cost of the loan need to be included in order to see the overall picture of the loan cost.
Factoring loan cost and interest rate
Although a lender may appear to have a low interest home equity loan, the costs associated with the loan may increase the overall cost of the loan, making it less attractive than a loan with a slightly higher rate of interest but less processing fees. For example, if you borrow $10,000 at a rate of 6.25%, but the fees to secure the loan equals 10% of the loan’s original face value, the loan is less attractive than paying 6.5% with fees under $500.
All of these costs add to the loan’s face value, and may indeed reduce the amount of equity you may receive because of the loan to appraised value ratio. In order to receive the most from your low interest home equity loan, choose a lender that offers not only a low interest rate, but minimal loan processing fees as well.
Make a list of pros and cons
One of the easiest ways to see all of the information you have collected is to make a list of each lender that you have researched, along with the pros and cons surrounding each one. By doing that you will be able to see in writing what each one has to offer and which ones have more advantages than disadvantages. It makes it more visible if you write everything down that you have discovered in your research, allowing you to see the factors that are more common among all the lenders you have researched.
Weigh the advantages and disadvantages
After you make a list of the advantages and disadvantages of each lender you researched, you want to analyze each one in order to weigh the information. Only after you have analyzed all of the information can you make an honest and educated analysis of the results you have compiled.
By: Bill Stone
© 2012 Home Equity Loan
