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Fees
And Other Costs |
Many of the costs that come with a line of credit or
traditional home equity loan are similar to the ones you pay when you financed your original mortgage.
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We can divide
these costs into 2 categories:
1. Upfront
Closing Costs: This
includes:
- Fee For Property
Appraisal, which estimates the fair market value of your home. This is sometimes part of your closing cost.
- Closing Costs,
which is paid at closing, including attorneys fees, fees for preparing and filing a mortgage, fees for title search, taxes, and insurance.
- Application Fee,
which covers the cost of processing the loan. May include charges for property appraisal and a credit report. This is not always refundable if you are denied credit.
- Points, which are service fees figured on the total amount of the loan or credit line and usually paid at closing. One point equals 1 percent of the loan. Points must usually be paid at closing and are in addition to monthly
interest.
These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line.
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2.
Continuing Costs: This
includes:
- Annual Membership or
Maintenance or Participation Fee, which is
charged regardless of whether or not the line is used.
It is an annual charge for having the line of credit available.
It can go as high as $100.
- Transaction Fee, which is charged each time you make a withdrawal from your credit line.
- Cancellation Fee, which is charged
if you pay off the loan early.
- Inactivity Fee, which is charged
when borrowers don't use their line of credit during a given period of time.
These fees add to the overall cost of the loan.
You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those initial charges would substantially increase the cost of the funds borrowed.
So go for home equity loan only if you really need it.
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