home equity line of credit

[lizbud]

i know some one here at PT will know the answers. i've owned my home for 4 years this month (!). i refinanced in 2003 and owe 17 yrs on a 20yr fixed rate mortgage. i get "offers" all the time for a home equity loan, but i'm kinda anxious about the idea. can some one explain how the process works...do i need another appraisal on my property ( and i get such a thrill out of typing that ), should there be closing costs, how do i tell the crooks from the good ones? . it's time to consider another half bath in the basement, possibly upgrading the kitchen.thanks for the advice and stories pro and con.

If you have a mortgage right now, doesn't that mean you do not own
your house outright? I think when you get home equity loan, you are
loaning out your equity on the house. I get these offers a lot too, but
don't think I know enough about them. I'd like to hear from someone
who understands them better myself.

[Ginger's Mom]

I took out a home equity loan last year to have some improvements done. The bank I went through was fantastic. No, I did not have to have another appraiser come out. I told them what my the amount of my first mortgage was, what the outstanding balance was, and what I needed the money for. Like you Joyce, I had just refinanced about three years ago (at a lower percentage rate, better terms and a shorter pay-off time), and I was worried that they would think that I hadn't been paying long enough or whatever. Anyway, it didn't seem to matter. I think they may have checked some of the housing prices in the area to make sure I didn't exceed the 80% value of the property, but other than that let me tell you, it was as easy as can be. I was very happy about the whole process. But again that was a loan, a fixed amount to be paid back over a fixed time period, not a home equity line of credit (which I wouldn't trust myself with ).

[Lizzie]

I took one out too last year, and had re-financed the year before. There were some costs but they were rolled into the loan. They did a quick value of the property, no walk-through.

I wouldn't go through any loan company I didn't know, I used my credit union.

The great thing about home equity loans is that the interest is tax deductible. I used it for home improvement, but also to pay off my car loan and credit card balances. This lowered the payments, since it was rolled into one sum, and made all my interest payments tax deductible. It's best to have a definite plan in mind and not just take out money because you can, because you are losing equity in your home and giving it to the bank until the loan is paid off.

Also, you sign that you won't do anything to your home that might make the value go down (something I don't think is on mortgate papers, at least not in such severe language). That made me pause because I really want to make my 5 tiny bedroom house into a 3 good sized bedroom house, but going from 5 to 3 bedrooms would lower the value initially so I can't do it until the loan is paid off.

Any bank or loan company will also charge you if you pay off your loan early. My credit union will only charge me $300 if I pay it off within 2 years (it's a 7 year loan), the big banks will charge as much as $500. This is to stop you moving it to another bank with a better deal.

[Lady's Human]

In most cases pre payment penalties can be avoided my shopping around. With the competition there is in the mortgage marketplace, you should be able to find a company w/o the penalties.

As to going with a bank or credit union that you know, you can severely limit your options by going that route. Shop around, just like you would buying a car.