Many of the costs in setting
up a home equity line of credit are similar to those you pay
when you buy a home. These costs include:
A
fee for a property appraisal, which estimates the
value of your home.
An application
fee, which may not be refundable if you are turned
down for credit.
Up-front charges,
such as one or more points (one point equals one percent
of the credit limit).
Other closing
costs, which include fees for attorneys, title search,
mortgage preparation and filing, property and title
insurance, as well as taxes.
Certain fees
during the plan. For example, some plans impose yearly
membership or maintenance fees.
You also may
be charged a transaction fee every time you draw on
the credit line.
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 charges and closing costs would substantially
increase the cost of the funds borrowed.
On the other hand, the lender's risk is lower than for other
forms of credit because your home serves as collateral. Thus,
annual percentage rates for home equity lines are generally
lower than rates for other types of credit. The interest you
save could offset the initial costs of obtaining the line.
In addition, some lenders may waive a portion or all of the
closing costs.
