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How to compare HELOC Rates and Fees --NY, NJ, and CT Mortgage Tip

Monday, July 24, 2017 - Article by: MEL SMITH--LENDER OF THE MONTH - . - Message

A HELOC lender will quote you terms, but you will want to compare the following factors:

1. Margin. Some lenders adjust margin more than others for your credit profile and equity in your home. This is the utmost significant single factor of your HELOC rate.

2. Rates on fixed-rate advance options. This is the second most significant determinant of your HELOC rate, and these can differ across lenders.

3. Maximum lifetime rate. HELOCs will have a provision that says Prime plus Margin cannot exceed a certain amount at any time during the life of the HELOC. This protects you if Prime were to spike materially.

4. Interest only vs. fully amortized payment. Some HELOCs will permit you to pay just the interest due on the outstanding balance; however, some will oblige you to make principal plus interest payments. The lenders that demand the latter can sometimes amortize that payment over 10 or 20 years. This will make the payment materially higher.

5. Draw period. This is how long you can draw on your HELOC, and it can also be diverse among lenders. A lengthier draw period is better if you expect to keep the home and the HELOC longer-term. These periods are usually 10 years and do not change drastically from lender to lender.

6. Repayment period. This is how long you have to pay back the drawn HELOC funds. Like draw periods, these are quite standard at 20 years, but also, still worth asking about to make sure you've got the lengthiest possible time -- or at least enough time relative to your estimated time in the home.

7. Annual fees. HELOCs perform like a credit card in that you can utilize and pay down the funds as you go. Servicing these loans is more complicated than servicing traditional mortgages. Lenders quite often charge an annual fee like credit cards do. The annual fees are usually nominal and similar across lenders, but it's still a good idea to compare fees to make sure no single lender's annual fee is drastically higher than another's.

8. Early termination fee. This is a fee that many HELOC lenders charge if you close the HELOC within a certain number of years. Compare not only the fees, but also how many years you need to hold the HELOC before this fee is waived.

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