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True Loan Costs Exposed
To compare the costs of your home equity loan,
you must first be aware of the differences of various types
of fees associated with a given home loan.
An APR (annual percentage rate) is a calculation
of the interest rate and additional fees. So searching for
the lowest available
APR among loans with the same terms, is a good way to
find the right loan.
Two of the fees that are included in the APR, are Points
and Closing Costs. Closing costs are fees due at the beginning
of the loan (paid during closing).
Points are used as a bargaining chip to reduce the payment
amount of loan interest rate. A point is usually represented
by one percent of the total loan value. So if your loan calls
for 1 point at the end of its term, you will be expected to
pay 1 percent of the loan amount. In some cases, points will
be paid down at closing and in other cases may be called up
at the end of a loan term.
Points and closing costs can be adjusted in order to make
the loan more compatible, but changing them can affect your
interest rate directly. If closing costs and points are reduced,
chances are your interest rate will increase. If on the other
had your points and closing costs are increased, you interests
rate should go down resulting in lower monthly payments.
If a lender promises no fees, there is a strong possibility
that the fees have been included in the loan amount and are
financed with interest. Find a balance that is good for you
can compare your APR to make your final choice.
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