Smart About Money: Home Equity Lines

Most homeowners think it’s going to be pretty easy to qualify for a home equity line of credit — and generally it is. You already have a home. You probably already have qualified for a mortgage. As long as you have equity in your home and you have maintained your credit rating/scores, you should expect to be approved for a home equity line.

Some borrowers believe they are required to go back to their mortgage lender to get a home equity line. Not true!

Nick Maffeo

For one thing, mortgage companies don’t write equity lines, so you have to find a local bank to work with to tap your equity.

And many homeowners who got their mortgages from a large, publicly held national bank are finding they can get a significantly better deal on a home equity line at a local bank.

One gentleman who had an existing home equity line with one of those large national banks recently spoke to me about a renewal letter he got from them.

They were urging him to renew his line two years early — for “convenience,” they said in their letter.

But his current line had a very competitive rate of Prime minus 1 percent with no fees for closing the line. The new one the big bank was offering would re-price his current line to Prime plus 1 percent immediately and there would be a $700 to $3,300 fee if he closed the new line within three years. (That is a very hefty fee!)

The deal they were offering was so good for them and so bad for him that he asked me if he was reading their letter correctly. He was. And since he was a smart consumer with a relatively small balance on his equity line, he decided it would be a lot more “convenient” (and significantly less expensive) for him to pay off his line with that big bank before it came due and then get a new line with an independent local bank that was offering a much better deal.

Right now, a borrower-friendly equity line will have a rate around The Wall Street Journal’s Prime. There should be a mention of the floor rate — you will never pay less than that. The maximum rate should be disclosed. Perhaps there’ll also be a mention of a reasonable fee if you open a line and then close it within a few years. (A fee of a few hundred dollars would generally be considered reasonable. Any higher fee should raise serious questions.)

Some banks offer a slightly better rate when you make your home equity line payments via an auto-pay from a checking account at that bank. That can be a no-brainer if you already have a checking account at that bank or don’t mind opening one. (Be sure the checking account conditions are reasonable.)

The auto-pay option could be more of a hassle if you already have an established checking account at another bank. Your lender can help you do the math to see if the rate discount is worth the extra financial housekeeping.

For many homeowners, a home equity line is one their biggest financial commitments, next to buying their home in the first place and paying for college. Your goal is to be with a lender you’re comfortable with, a lender you feel you can trust.

Remember that you can always seek a second opinion if you have any concerns about the terms of a home equity line you’re being offered. Sure, it will take a bit of time to get that second opinion. Most borrowers who have questions think it’s totally worth it to set their mind at ease and be 100 percent sure they got a good deal.

Nick Maffeo is the president and CEO of Canton Co-operative Bank in Canton. Have a question? Email to submissions@thecantoncitizen.com.

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Posted by Nick Maffeo on Apr 27 2018. Filed under Featured Content, Opinion, Smart About Money. Both comments and pings are currently closed.