Times are definitely tough for many Americans at the moment. With this recession that started around the middle to the end of 2008 and has continued right into 2010, many people are finding it hard to make ends meet. One of the tools that people use to dig themselves out is to tap into a home-equity line of credit.
Unfortunately there are many traps that you can fall into when it comes to this sort of thing which is why I wanted to write this article today to shed some light on some of the more common ones so that you can get the money you need to take care of yourself without getting taken advantage of by the banks.
One common trap when it comes to refinancing your home is that many banks will charge excessive upfront fees, which they usually label as points and can very quickly make refinancing your house prohibitively expensive.
What many people don't realize is that banks are not required to charge you points. There is no law saying they have to do it. They only do it because they think they can get away with it. In the old days people stuck with one bank for most of their life and that created a culture of bank superiority where they thought they could just do whatever they wanted. Fortunately for us these days we know better.
It only takes a few minutes to go online and search for cheaper loans at competitive banks. So if you're not happy with the number of points that your bank is charging you for your refinance, you can do one of two things.
You can either go to another bank and deal primarily with them. That's the first option. The second option is to research other banks and come up list of several others that charge fewer points or less points and then confront your own bank with this information.
Tell your loan officer that you have other banks who are willing to charge you less and if they want to keep your business they will meet or beat that offer. You be surprised how often this will be effective.
Another trap to fall into is the variable interest rate trap. Variable interest rates are loans that fluctuate as far as interest rates go. Usually they state that once a year the bank can reassess the financial situation of the economy and increase or decrease the rate of interest that they charge you within a normally preset range.
Usually this is one to three percentage points that they're allowed to increase or decrease depending on the current prime rate that is being charged on average nationwide.
You may be tempted to get a variable interest rate loan because if interest rates are falling your loan will decrease and you'll pay less but during times of inflation when interest rates are rising you end up paying more in the long run.
A fixed rate loan is better because you know without a doubt that your payments are set in stone for the next 30 years, at least if it's a 30 year loan, and you know that the bank can't increase your rate no matter what. That kind of peace of mind is well worth the expense in my opinion.
So there you have several common traps to look out for when it comes to getting a loan to refinance your house. Armed with this information you should deal to negotiate the best loan possible at the lowest cost to you.
Jason Markum has been an article writer online for well over 13 years. When he's not writing articles, he has a good time running a blue willow dinnerware web site where he also reviews certified international dinnerware for your home dining needs. Article Source: http://EzineArticles.com/?expert=Jason_Markum How to Avoid Common Home Equity Loan Traps |
