Financial Security

When comparing various home equity loans, make sure you take into account the following factors:

• Monthly payment costs. Determine whether you can actually afford the payment that’s being proposed.

• The annual percentage rate, also known as the APR. This figure represents the cost of credit in terms of an annual rate. By comparing APRs, you can quickly determine which company is offering the better deal.

• Is the interest rate variable, or will it remain fixed? If it will change, how much will it change, and will you face more than one change?

Other Key Considerations:

• What is the length of the repayment period? Is it too short, too long, or just right?

• Make sure you determine whether you’re being offered a loan or a line of credit, since there is a difference between the two. A loan represents a fixed amount of money for a certain time period, while a line of credit is money you can access if you require it.

• Beware of balloon payment loans. With a balloon payment, you’ll have to accept a large payment at the end of the term. In exchange, you’ll make smaller payments leading up to the balloon payment. With balloon payment loans, you’re betting that your financial future will be better than your past—significantly better. It’s a risk many home owners simply cannot handle.

• Determine what will be required of you in terms of points and fees. Keep in mind that a single point equals one percent of the loan amount. Usually, when your points are higher, your interest rate is lower. Usually, companies charge somewhere between one and three percent of the loan in points and fees.