Luckily, with traditional home equity loans, the process is pretty simple: you find a good rate for a term that works for you, and you apply. If you get the loan, congrats. You have the lump sum you need. But just in case, here are some questions you should ask before agreeing to anything.

I know that my interest rate is the prime rate, plus some extra points (called the “margin”). What’s the margin on this loan?
The standard range is 2% to 3%.

What fees are involved in taking out this loan? Which fees are upfront, which go to you, and which go to any third parties?
Ask this question, in part, because it will show your lender that you mean business. Another reason to ask this question is that, well, lenders will probably try to rip you off by piling on extra fees. Don’t let them get away with it. Make the lender explain each fee to you and, if something looks odd or excessive, don’t be afraid to challenge them on it.

How long is your approval process?
Find out how long it usually takes for them to approve the loan process.

HELOCs are more complicated—here are some questions you should ask before agreeing to anything.

Does this line of credit have advance and repayment periods? If so, what are they?
Ideally, it doesn’t. Unless you’re being offered a killer rate and the advance period is in sync with your credit needs, we’d steer clear of loans that had this feature.

Is the rate you’re quoting me an introductory rate? If it is, how long is the intro period and what does the rate go to afterwards?
The intro rate is just to get you through the door. Focus on the subsequent rate after the intro period expires. This is the number you’re going to have to live with.

I know that my interest rate is the prime rate plus some extra points (called the “margin”). What will my margin be for this line of credit?
The standard range is two to three percent.

What fees are involved in taking out this line of credit? Which are upfront, which go to you and which go to any third parties?
This question is here, in part, to show your lender that you mean business. The other reason it’s here is because lenders will, with a fair degree of certainty, try to screw you with extra fees. Make them explain each one and, if something looks odd or too much, challenge them on it.

Many HELOC lenders have no additional application fees when you sign up for a line of credit.

Does this loan have any minimum withdrawal or balance requirements, or any prepayment penalties or early-cancellation fees?
Again, it shouldn’t.

Want to Know More?

• What's Home Equity?
• Should You Use Home Equity?
• Advice on Where and How to Get a Good Deal