The Seafirst home-equity, lump-sum, fixed-rate loan last week carried an interest rate of 12.75 percent for amounts under $7,500. The rate is reduced to 12.25 percent for amounts greater than $7,500. There is a 2 percent loan fee and the borrower is also responsible for additional title insurance, recording fees and appraisal. Rates are a tad lower for variable- and adjustable-rate loans.
Seafirst's interest rate for a line of credit up to $100,000 was 11.31 percent with an annual fee of $40. Borrowers again were responsible for paying for the credit report, appraisal, title and recording fees.
Under this type of loan, borrowers can tap the line of credit at any time and pay interest only on the portion they use. On lump sum loans, the borrower makes a fixed payment every month.
Lump sum or line of credit? Good question. If you take a $25,000 lump sum and include loan fees, your total note will be about $25,653. At 11.75 percent interest (adjustable) the monthly payment would be $303.76 for 15 years.
If you opted for a line of credit and took out $25,000 on the first day and kept it out, your monthly payment would be about $610 a month. So, if you plan to take out money and not repay it quickly, the lump sum payments are easier to handle monthly.
The drawbacks of home-equity loans hit close to home because that's exactly what is held hostage if the debt is not repaid. If rates rise and the borrower finds himself with an unexpected problem - such as loss of a job or a divorce - that means not being able to pay, the lender could foreclose and eventually take the house.
One rule of thumb is that anything you buy and use immediately - food, entertainment, fuel - should be paid for out of current income. The convenience of writing your own check for any purchase against a loan can spark the frivolous in many consumers. In fact, some financial advisers say abusers of credit may be smart to stick with car and boat loans. That way, they aren't risking the roof over their head if they can't afford the payments.
Tom Kelly is a private real-estate consultant. His column runs every Sunday in the Home/Real Estate section of The Times.
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