Ravi Chandran
Things You Should Know About That HOME EQUITY LINE
Home equity is the money value stored up in your house that exceeds the amount of debt you owe on it. In many ways, the equity in your house is like money in your savings account at the bank.
Today, more and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizeable amount of credit, available for use when and how you please, at an interest rate that is relatively low.
A home equity credit line can only be secured if you have a private residential property.
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Because it is a secured credit facility as opposed to an unsecured one, it has a lower interest rate compared to typical credit lines. The limit set on the account depends on the applicant’s request and subject to LTV.
For example, if a property is worth $750,000 with $300,000 loan balance. At a LTV of let’s say 50%, the maximum loan will amount to $375,000. After deducting the loan balance, you would be left with $75,000. This would be the credit limit on the Home Equity Line of Credit.
KEEP IN MIND – when you borrow money against the equity in your residence you give the lender a security interest in your home – your house is collateral that secures the loan. You can lose your home if you cannot make the payments that become due on your loan.
If you are considering borrowing money, be a smart consumer and shop around. Remember, there is more than one lender in the marketplace, and that means you can cost-compare between competing lenders no matter how “good” or “bad” you think your credit rating happens to be. You can bargain with the lender for a better price and interest rate than the lender initially offers.
When shopping for a home equity line, look for a plan that best meets your particular needs.
Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rates (APR) and the costs you will pay to establish the plan. Many of those costs will be similar to the ones you pay when buying a home:
- Property appraisal fee
- Loan application fee
- Up-front charges
- Closing costs including lawyer fees, title search, mortgage preparation and filing, property and title insurance
- Transaction fees
Borrowers Beware!
Watch out for these common home equity traps to avoid borrowing more than you can afford to pay back. Remember, if you can’t pay a home equity line back, you could lose your home!
Padding of Loan Fees and Charges: Generally fees charged to originate a loan. They are also known as “prepaid finance charges” and can include the payment of discount points, loan origination fees, underwriting fees, and countless other charges, limited only by a lender’s imagination.
Mortgage Broker Fees: Mortgage brokers function as middle men between you, the borrower, and the financial institutions that lend you the money. Mortgage brokers help you to search for the best home equity loan by comparing the facilities offered by the dozens of financial institutions. You usually do not have to pay a fee to the broker to find a lender willing to extend you credit. Because the broker may at times get wholesale rates, you may end up with a better deal. But beware of brokers who ask for fee payments upfront.
Teaser Rates: Some lenders lure borrowers into adjustable loans that initially have a low interest rate – called a “teaser rate” – but, over time, the interest rate will adjust up. You must be sure about how fast and how far your interest rate could adjust.
Adjustable Rate Mortgages With Hidden Margins: A loan that does not have a fixed rate of interest. The interest fluctuates based on changes in the “market index.” Some lenders will use large “margins” to inflate the variable interest rate. Depending on its size, the margin can raise the interest rate and cause the subsequent monthly payment to skyrocket in a very short period of time.
Loan Flipping: In Singapore, property flipping a la Fixer Upper isn’t that common. The practice in which the lender induces a homeowner to repeatedly refinance their home. With each refinance, the homeowner gets a relatively small amount of cash compared to the refinanced amount. The homeowner also pays a big fee to get that new loan, thereby adding to the homeowner’s overall debt load.
Prepayment Penalties: Fees charged by the lender if a homeowner attempts to pay off a loan before the end of the loan’s stated term. These fees can add thousands of dollars to the cost of subsequent refinancing or to the sale of your house.
Do you know enough about home makeover and how property valuation is done in Singapore?
Knowing how to calculate the property valuation is of paramount importance to a home owner. It can help you determine whether you are overpaying for a home, or whether you have gotten yourself a real bargain. Paying the right price is just one way you can avoid overspending on your property.
Another smart way to avoid overspending on your property is to get the right loan. Getting the right loan can be a much simpler task, but only if you get the right person to it for you. Get in touch with trusted loan consultant to help you get the best loan deal at the right price.
Trustworthy mortgage brokers can set you up on a path that can get you a home loan in a quick and seamless manner. They are the experts who do the work for you for free, while you lean back, rest and rely on their professionalism at absolutely no cost to you.
Mortgage brokers have close links with the best lenders in town and can help you compare Singapore home loans and settle for a package that best suits your home purchase needs. You should also find out about money saving tips.
Whether you are looking for a new home loan, or a home equity line, or to refinance, the Mortgage broker can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them.
