Home Equity Loan as an Option for Home Financing
Home equity loans (HELs) are those which are provided to borrowers after they set up their homes as collateral. Home equity lines of credit are revolving credit lines allotted by the lender. HELs have lower interest rates than most other options of financing such as traditional loans and other forms of credit. Besides, the loan is secured against your home, which acts as a collateral. This means the bank does not see this loan as a big risk. Furthermore, this form of loan is a tax-deductible option of financing.
Interest Rates Involved
Home equity loans carry a fixed rate of interest as they are regarded as an installment loan. However, remember that home equity lines of credit(HELOCs) may have variable interest rates.
Closing Costs Charged For a Home Equity Loan
Closing costs are necessary to create a home equity line of credit or a home equity loan and comprise of several factors. This includes fees such as attorney’s fees, the application fee, mortgage preparation, and filing fees, property and title insurance, and the property appraisal fees for finding the value of the home. Overall, there is a fee that amounts to between 2 and 5% of the total amount of the loan.