Home Equity Loan Basics

Equity is the cash value in your home acquired over a certain period of time.  To determine your homes’ equity, you need to find out the value of your home on the current market and subtract the balance owed on the mortgage.  In general, a home equity loan is a second mortgage that will give you your equity in one lump sum. There are fixed-rate mortgages and adjustable mortgages. The loan is secured by the home itself, so if you do not repay your debt and default on the loan, your lender can foreclose your home. This could be a bad situation for you and your family, so make sure you have the ability to make the monthly installments before you choose to obtain such a loan.

 A home equity loan usually includes an annual fee and a “margin” which can become quite costly. Margin refers to the amount used to determine your new rate at each adjustment period. This type of loan also has the same fees as a traditional mortgage, which could include closing costs, title search, appraisal, application fee and an annual maintenance fee. You really need to do your homework and understand your options before obtaining a home equity loan.  You should find out about such things as pre-payment options, balloon payments, and principal.  Get several quotes from multiple lenders before you decide on your loan. Many credit unions are free to join and offer lower fees and interest rates. You can check interest rates and get quotes from most financial institutions online. Make sure you get the best rate that you can. Two things that affect rates are credit and location. If your credit is bad, your interest rate will be higher. Many states are very competitive when it comes to rates and home equity loans, one of which is Nebraska. Currently, Nebraska home equity loan rates are close to the national average of 7.66 percent. If you take your time and do your homework, you can get a home equity loan that you can afford.