6 Key Questions When Considering a Home Equity Loan
As with any major financial decision, a home equity loan should not be rushed into without forethought and consideration. Once that’s been undertaken you need to be inquisitive with potential lenders to ensure that the product you are getting will meet your needs and your expectations. A good lender will always allow you the comfort of asking as many questions as you want.
When it comes to finances there are rarely any stupid questions, only people that don’t ask questions.
Q1 What Will It Cost?
This might seem like a straightforward question, but it’s designed to help you assess not just the value of a loan, but what it will actually cost long term. You may be borrowing $125,000 but it costs you more than that across the term as interest will be charged on the principal debt on a monthly basis. That means the true cost is more than $125,000 and is dependent on the interest rate you agree.
This is especially important when taking out a loan to consolidate debt, will the lifetime cost of your debt be improved through consolidation?
Q2 How Long Will It Take To Repay?
The length of time a loan is set to be paid over is called a schedule and it’s one of the key factors in a loan that can vary, along with the amount loaned and the interest rate.
Shorter loans may have higher rates of interest, but longer loans may allow you to overpay from your monthly budget, ensuring more money goes towards your principal debt rather than the interest on that debt.
In general, a home equity loan will have a schedule of between 5 and 15 years.
Q3 What Fees Are Involved?
While a longer scheduled loan may enable you to overpay, you’ll want to know if there are fees for this in advance. Or fees for closing the debt early. Or closing fees at the end of the schedule. Or… well, you get the picture.
Make sure you’re clear about what actions you might take with your loan, such as overpayments or closing early, and whether you will be penalised to do so. While the documentation associated with a loan is detailed, and can sometimes seem impenetrable, you can search electronic versions for keywords such as fee, charge, levy or payment to see what you might be liable to pay.
Q4 Can I Get A Home Equity Loan With Bad Credit?
There’s no straight answer on whether you can as every person’s situation is different. You may have bad credit due to historic factors while your current debt-to-income ratio is good. Or, you may have a larger than normal amount of equity in your property, though most lenders set an upper limit of 80% equity to borrow against. Discussing these factors with a lender prior to settling on a product is essential.
The majority of lenders set a threshold for credit scores at around 600 for automatic consideration of a home equity loan. At the least, a lower credit score will probably mean you face a slightly higher interest rate on your loan rather than impediments to getting the loan.
Q5 Will A Loan Like This Meet The Needs I Have For The Money?
There are many reasons why people take out loans, including home equity loans, and not every type of loan matches every type of need.
As much as this is an important question for you to ask of a lender, you also need to be clear on why you want the money and what your plans are for repayments. Lenders have been known to use the reasons for wanting a loan as a deciding factor in assigning a loan, so make sure you can explain how you'll use the money and how you intend to manage the debt.
Who Should You Ask?
The experts at Canadalend.com are independent experts. This means that they can give you knowledgeable advice and guidance prior to taking on a new financial commitment, but it also gives them freedom. Freedom to work with you to find the right product for your financial needs.
Through Canadalend.com they have access to hundreds of different lenders, and a plethora of available products, such as home equity loans, that can meet your needs in a manageable and appropriate way.
To find out more, contact Canadalend.com today and start asking questions about your options for borrowing.