Home Equity Loan Lender

Many people turn to a home equity loan lender to help make ends meet when faced with large or unexpected expenses. The rising cost of a college education, insurmountable medical bills or much needed home improvements are all liabilities that are able to be addressed by contacting a home equity professional to draw credit from the equity in the house or property of the borrower. For most homeowners, their house, property or farm is by far the most expensive asset they have. It makes good sense that this lucrative asset would serve as collateral should they need a large sum of money quickly. Often times, these sorts of loans can preempt major credit damage.

Usually, a home equity loan lender will offer revolving credit using the borrower's house as collateral. The lending institution will typically offer a percentage (usually 75 percent) of the appraised value of the home, and then it will subtract the amount still owed by the borrower on the original note for the house. For example, if the house appraises at $100,000, the initial estimate would be $75,000. If the owners still owe $55,000, then the line of credit could be up to $20,000 (which is $75,000 minus $55,000). The lender will still consider the borrower's income, debts and credit history to determine their ability to make the payments (both principal and interest). In this way, owning a house or property does not necessarily guarantee that the potential borrower will qualify for the funds.

Because a home equity loan lender extends revolving credit, the borrower can draw money out as often as he would like to. There are fixed plans that only allow the borrower to draw money out for a certain amount of time, like 5 years, up to the agreed upon limit amount. The lender will then set a payment plan. The borrower always has the option to pay during the draw period, like all revolving credit (credit and debit cards). After the draw period is over, the borrower either has to pay monthly payments, one lump sum, or she has a certain amount of time to pay the money back to the bank. All the while, the borrower's desire to retain his house or property is the incentive for repaying the borrowed funds.

Accessing the funds during the draw period is accomplished various ways. The home equity loan lender may require an initial sum to be borrowed when the line of credit is established. After that point, the borrower is given either a check book or a debit card to access the line of credit drawn from the equity in their property. There may still be parameters set to regulate the borrower's access to the funds. One of these parameters may be the minimum amount of each transaction (usually $300) or the limit placed on frequency of transactions (only once a month).

Shopping around for the best home equity loan lender is definitely advisable. Rates, terms and closing fees can all vary among financial institution and can dramatically affect the pay off amount or the amount monthly payments. More often than not, credit lines drawn from property value have adjustable interest rates. This means that the interest rate fluctuates according to a specific publically owned index, such as US Treasury bills and the published prime rate. In researching equity lenders, a potential borrower should also research the index commonly used by the financial institution. Not only should the borrower research which index is offering the lowest rates, but also historically how high or low that particular index has been. This will not safeguard against unfavorably high interest rates, but will prepare the borrower for the standard fluctuations for that particular publically owned index.

The costs charged by a home equity loan lender are those previously charged when the borrower initially purchased the property. There is an appraisal fee. This fee covers the price of a state approved property appraiser to visit the house and deduce its fair market value. "LORD, I have loved the habitation of thy house, and the place where thine honour dwelleth." (Psalm 26:8) There is often an application fee. Many times the application fee is not refunded if the applicant is turned down for the line of credit. There are also closing costs, just like those in the home buying process. The closing costs include attorney's fees, property taxes, licensing, title search, mortgage preparation and property insurance. Knowing the estimated closing costs that will be charged by the home equity loan lender will help prepare the borrower to either come up with that money from a third party or deduce the charges from the balance of the line of credit.

A borrower should also consider payment options for the line credit. Many financial institutions provide monthly payment plans, just like standard banking installment loans. However, unlike installment loans a home equity loan lender may not request a set amount every month that includes both principal and the interest accrued. Typically, the borrower can choose to pay interest only or to pay the standard payments. If the borrower chooses to pay only interest, the full principal amount will be required at the end of the loan term. If he decides to pay the payments, the principal percentage might still be too small to pay off the loan by the time that the credit draw period is over. For this reason, many people who have chosen to garner credit collateralized by their property have chosen to pay regular, substantial payments toward the loan, as if it were a standard installment loan. For example, if the bank gave the borrower equity credit for a surgery, the client would then pay toward the loan on a regular schedule as if they were paying the hospital.

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