Making Banks Compete for your HELOC
written by Credit-HQ ExpertIt is not hard to find a lending institution that will set up a home equity line of credit loan for you. If you have a valid equity in your home or a property, that represents a secured risk which is the kind of loan banks love to make. Another reason HELOC loans are highly prized by lenders is that the default rate on them is so low that records are not even kept. That is extremely low risk and a reasonable interest rate. That is the recipe for an ideal loan to a lender.
Because lenders love to land a HELOC contract, they compete hard for the chance to get your business. Often the lender will cover the appraisal costs and the fees for title insurance and the like so that you will have little or no costs to bear to set up the loan. Its worth it to make creditors compete if you want a equity line loan because they will bend over backwards to get that kind of business from you.
Dangers and Sand Traps
That said there are some pitfalls to be on guard about when you are setting up a home equity line of credit loan. You will see a promotion in which the lender guarantees you will pay no closing costs. This is a bit of a slight of hand. What that means is that there is almost always a early termination fee so if you pay off the loan, you pay a hefty cost at the end. They get their money at the end of the loan rather than at the beginning.
Also be aware of how tempting it will be to only pay the interest on the loan each month. If you have other high interest credit cards to pay on, you will be prone to not pay on your HELOC loan because it has a lower interest than most credit cards. Fight this temptation. You can only “buy back” your equity by paying on the principle each month as well. You should also work to get the principle down so that if a time comes up like the time to buy a car or pay for schooling, you will have some equity there to cover that bit expense.
Finally, put the checks that give you access to your HELOC loan somewhere safe so they don’t become like your regular checkbook. This line of credit is too critical to use like a regular credit card. Make it difficult to use your equity so that you only tap the power of your HILOC loan for something important. In doing so, you avoid “abusing” your second mortgage which will rob you of your equity before you know it.
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