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Closing Costs
Many of the costs of obtaining a home equity
line of credit may look familiar to you. From the lender's
standpoint, there isn't much difference between a purchase money
mortgage, home equity loan, or home equity line. The standard
services will be required to protect the lender's interest.
Potential services and their associated fees include:
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Property appraisal.
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Loan application. The fee may not be
refundable if you are turned down for credit.
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Loan origination fees (points). One point
equals 1 percent of the credit limit.
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Attorney, title and escrow, mortgage document
preparation, recording documents, property and title
insurance.
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Annual membership or maintenance fees.
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Transaction fee for drawing on the credit
line.
Establishing a home equity line (plan) can be
expensive. If you incur substantial fees to set up the plan,
and draw only a small amount against it, the cost of borrowing
can be unreasonable. If you plan to use your credit line
frequently, the costs of obtaining the equity line will be
spread over larger and larger amounts, effectively reducing the
cost of the plan. Because the lender's risk is lower for secured
loans compared to unsecured loans, the interest rate on your
equity line should be low compared to other, unsecured
loans. Thus, annual percentage rates for home equity lines are
generally lower than rates for other types of credit. (Be
careful--the APR is based on the assumption that you're
borrowing the maximum amount.) The interest you save could
offset the initial costs of obtaining the line. Shop around
before signing loan documents. Some lenders may offer
zero-point/fee equity lines. |
