With a home
equity
loan, you borrow a lump
sum, usually at a variable rate of
interest,
although some fixed-rate
loans are available. You pay off the
debt
in installments, just
as you repay your
mortgage,
with some of each payment going toward
the
principal,
or loan amount. At the end of its
term,
or payment period, the loan is retired.
You may have to pay closing costs on your
loan, just as you did for your first, or primary, mortgage. But
lenders may offer loans with no up-front expenses as part of a
promotional deal. You might also be offered a
teaser
rate,
or a period of low interest as an incentive to borrow.
If that’s the case, the lender has to tell you the actual
cost, or
annual
percentage rate (APR), and when the temporary rate ends.
Where to go for a loan
Home equity loans are generally easy to find.
Banks offer them, and so do
credit unions,
mortgage bankers, brokerage
houses, and insurance companies.
You can start by checking rates and terms
advertised in the newspaper and making some phone calls to see
what’s available. But before you commit yourself, you should
get a description — in writing — of the rates, the term,
and the other conditions of the loan.
