Strapped for cash? Depending on the current real estate market, you may just have the money you need right there in your home. No, not a hidden safe you forgot about, but the equity you’re sitting on. A home equity loan is one way of taking advantage of that equity without having to sell the home to get your hands on it. The home equity loan places a second mortgage on the home and, like the first mortgage, there are fees associated with the loan. These fees vary between lenders, so it pays to shop around for the best rates and terms.
Here are some common fees and closing costs you may encounter for a home equity loan:
Interest
Interest makes up the lion’s share of the cost of a home equity loan. Unlike a home equity line of credit, an equity loan generally carries a fixed rate.
Application Fee
The application fee covers processing costs associated with processing an application and checking your credit.
Points or Origination Fees
Points are determined by the lending institution in accordance with the loan program you have selected. A point is equal to one percent of the total loan amount. As an example, one point on a $300,000 loan is $3,000. The lending institution charges loan origination fees for sourcing and delivering the loan. Origination fees are also expressed as points.
Title and Title Search
A title or title search fee covers the costs associated with confirming the ownership of the real estate. This fee normally includes the cost of an insurance policy covering the borrower in case of damages arising from discrepancies in the property title. One way to save some money with this fee is to ask your current policy issuing company to re-issue the policy at the re-issue rate.
Attorney Review Fees
The lender’s attorney conducts the home equity loan closing. The lender may charge you for their attorney’s fees.
Appraisal Fee
The appraisal is a professional estimate of the value of a home or property. A licensed appraiser analyzes the housing market in your area to determine your home’s current market value.
Prepayment Penalty
Your loan contract may include a prepayment penalty. This means that, should you pay the loan off early, you will be charged a certain amount - typically, a percent of the balance of the loan at the time of payment.
No-Cost Home Equity Loans
Some companies may advertise a “no cost” home equity loan. Chances are good there are some fees that will find their way into the loan, so pay close attention to the paperwork that the lender sends upon acceptance. Sometimes, the devil truly is in the details, so read the entire document, including the fine print. Consult with your attorney before signing anything you don’t understand.
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