Home equity loans are a great source of cash. However, before you plunge right into the process of drawing out a loan out of the equity of your property; you should take a look at the fine print and what it means to you.

Are you thinking about getting a home equity loan? Home equity loans might be easy to acquire the type of loan, but somehow even a seemingly great deal might turn out to be bad if the process of getting one is not done right. Make sure you understand all the language used in the loan process. The more you know and understand going in the better off you are at spotting trouble spots.

Let’s take a look at the following areas and terms for the loan process.


How are you affected by this? Most lenders charge a part of the loan for commissions for themselves and for their sub-agents. Actually, such points vary from little too exorbitant; it all depends on the company. If you are charged 1 point, this would mean 1 per cent of the loan. And so 1 per cent of a 100,000 dollar loan is an upfront charge of 1000 dollars. Do not worry, there are lenders that do not charge points.

Loan interest rate terms

You have to know if it is a fixed or variable type of loan. If it is a fixed loan, then you do not have to worry about external forces such as economic situations directly affecting your interest rate. But on the other hand, if you have the variable type of loan, you may actually have an initial good interest rate. Interest rates that go up naturally make your monthly payments go up too in the process. So what do you want ” a home equity loan with interest rate that stays the same all throughout the duration of the loan, or one with the possibility of going up anytime?

Pre Payment penalties

Simply put prepayment penalties are a fee that the lender places on you in the event you decide to pay off your loan early. These “pre-pay” can cost several thousand dollars in some cases.

Late pay fees

In some cases, while you may have a low-interest rate, you may have a clause in the contract for the loan that will increase your interest if you’re late on a payment. In most cases, this can add up to several thousand extras over the life of the loan.


One thing you want to check for is if the home equity loan that you are prospecting has insurance costs hidden somewhere, a cost that you definitely do not want. You can have credit life insurance, which takes care of your loan in the event that you die. However, if in the case of a home equity loan, if you feel that insurance is just added cost, then, by all means, avoid the lender that requires you to pay for them.