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Unformatted text preview: e plan. The disclosed APR will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders. Interest Rate Charges and Plan Features – Home equity plans typically involve variable interest rates rather than fixed rates. A variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate); the interest rate will change, mirroring fluctuations in the index. To figure the interest rate that you will pay, most lenders add a margin, such as 2 percentage points, to the index value. Because the cost of borrowing is tied directly to the index rate, it is important to find out what index and margin each lender uses, how often the index changes, and how high it has risen in the past. Sometimes lenders advertise a temporarily discounted rate for home equity lines–a rate that is unusually low and often lasts only for an introductory period, such as six months. Variable rate plans secured by a dwelling must have a ceiling (or cap) on how high your interest rate can climb over the life of the plan. Some variable–rate plans limit how much your payment may increase, and also how low your interest rate may fall if interest rates drop. Some lenders may permit you to convert a variable rate to a fixed interest rate during the life of the plan, or to convert all or a portion of your line to a fixed–term installment loan. Agreements generally will permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable–rate plans may not allow you to get additional funds during any period the interest rate reaches the cap. COSTS TO OBTAIN A HOME EQUITY LINE
Many of the costs in setting up a home equity line of credit are similar to those you pay when you buy a home. For example: 15-10 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 15: REFINANCING OR NOT AND CHOOSING A LENDER
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10