Home equity is the difference between what your home is worth and the amount you owe on it. For most homeowners their home is their biggest asset and it usually represents a treasure trove of cash. In 2005 the value of home equity across the US was $11.3 trillion.
When it comes to borrowing money using your home as collateral (home equity) there are basically only two ways to go aside from a reverse mortgage: a Home Equity Loan Line of Credit (HELOC) or a second mortgage.
After you have shopped around for a lender and done your due diligence on finding a lender shop some more to find the right loan product for your situation. Then here are the top questions to ask.
---What are the monthly payments? Can you afford it?
---What is the annual percentage rate (APR) on the loan? The rate on the loan is the cost of credit, expressed as a yearly rate.
---Will the rate change during the life of the loan? If so, when, how often, and by how much?
---How many years will you have to repay the loan?
---Is this a loan or a line of credit?
---Is there a balloon payment--a large single payment at the end of the loan term after a series of low monthly payments?
---What are the points and fees? If it is more then 5% I'd keep looking
---Are any of the application fees refundable if you don’t get the loan?
---How and how much will the lender or broker be paid?
---What is the penalty for late or missed payments?
---Is there a pre-payment penalty?
Asking these questions may end up saving you some money and keep you out of trouble. Don't be shy-ask away. You have the right to know.
Jack Krohn is a leading free lance writer on Home Equity and Mortgage issues with over 50 articles to his credit. He is also the #1 author of Home Security Articles in the country.
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