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 Calculating home equity line of credit vs. loan rates
  Fees: Home equity loans vs. home equity credit lines
By the EchoBay Loans Expert
 Calculating home equity line of credit vs. loan rates
Dear EchoBay Expert: Are the interest rates charged for a home equity loan and a home equity line of credit calculated in the same way?

Dear Loyal Reader: No, the costs associated with these loans are not the same. If you take out a home equity loan, or a HEL, you'll probably receive a lower interest rate but will also have to pay closing costs and points associated with the loan.

With a home equity line of credit, or a HELOC, you won't pay closing costs or points, but you'll probably wind up with a higher interest rate. With a home equity loan, it is possible to get a fixed interest rate, whereas with a home equity line of credit, you will have an adjustable rate.

This means that your interest rate can go up or down depending on the index and margin that your lender uses to calculate their interest rates.

If interest rates rise substantially, your payments will rise as well and you may wind up spending more than you would have if you had opted for a home equity loan with a fixed rate, so closing costs alone should not be the sole determining factor in whether to obtain a HEL or a HELOC.



 Fees: Home equity loans vs. home equity credit lines
Dear EchoBay Expert: What type of fees will I need to pay for a fixed term home equity loan or for home equity credit lines?

Dear Loyal Reader: Home equity credit lines and home equity loans generally do not feature all of the closing costs associated with your first mortgage. The fees will vary by lender but you can typically expect to pay for an appraisal, an application fee, points and other closing costs such as document preparation.

With a home equity line of credit (HELOC), you could also have to pay a transaction fee for each transfer, an inactive fee if the line remains dormant, an annual maintenance fee and a termination fee if you close the line early. As mentioned, the fees will vary widely by lender.

You will usually pay less in fees with an online lender simply because they have less overhead than your local bank. You can also occasionally run across a no closing cost HELOC if you draw the line to a certain amount immediately (usually $10,000) and maintain that balance for six months.

The best thing you can do is get quotes from several lenders and compare all of the closing costs along with the rates. Again, online can be the most convenient way to gather this information.


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