Wednesday, March 15th, 2017

Things to Consider When Searching for a Home Equity Line of Credit

According to Zillow, the median home price in the D.C. area has increased by 37% over the past 4 years, and thanks to this good news, you’ll now find yourself with a sizeable amount of equity in your home. This presents you with an opportunity to tap into your home’s equity for a variety of purposes such as funding your child’s education or building that garage you always wanted.

Many people utilize a home equity line of credit as their financial vessel of choice because it provides them convenience. You can access the equity in your home with discretion and ease of use. But, now raises the questions of how to compare one financial institution’s offering from another? When you are ready to start shopping for a home equity line of credit here are some helpful tips to remember.

Interest Rate Margin, Index and Repricing Frequency

Almost all home equity lines of credit have a variable interest rate, and you’ll want to pay close attention to this. The rate is usually based on an index such as the Wall Street Journal Prime Rate and the financial institution either adds or subtracts a margin to that rate. Of course, a margin that subtracts from the index is much better than one that adds to the index. When comparing options, you also want to determine the frequency that your rate will change should the index increase or decrease to ensure that you’re prepared and understand why these changes occur.

Determine the Maximum Rate

While you are comparing the different financial institutions, make sure you identify what the maximum interest rate could be on the loans you are considering, and know this could vary significantly by lender.  You’ll want to ensure that you can manage the new payments should the rate increase to its maximum and be able to adjust your budget accordingly.

Amount of Equity You Can Borrow

Institutions will differ on the amount of equity they will loan you, and the average that many will let you borrow is up to 80% of the value in your home. However, some will go higher. For example, FedFinancial allows you to borrow up to 90% of the equity in your home without an increasing its extremely low interest rate. Plus, you may borrow against the entire amount of equity in your home. If you decide to do this, your rate will increase by only 1% from the regular rate.

Avoid Monthly Maintenance Fees

Some financial institutions charge a monthly maintenance fee for providing you with the line of credit, and this fee adds to the cost of your loan. Take the time to look for options to avoid this monthly fee, as well as to find the best rates and repricing frequency. If there are any aspects of your loan that you find fuzzy and don’t quite understand, don’t hesitate to involve an expert, to gain the clarity that allows you to make informed and confident financial decisions.

For more information on finding a home equity line of credit that is right for you, contact FedFinancial:

Website: visit our website here

Call:  (301) 881-5626

Email: contactus@fedfinancial.org

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