Buying Guide to Home Improvement and Home Equity Loans

Recently my husband and I decided to put a pool in our backyard. We were faced with the task of trying to decide what type of loan to pay for our pool. I knew that if I applied for credit too many times it would eventually negatively affect my credit score. I found out later that now consumers have a 14 day window to apply for loans before it adversely affects their credit score. 

At first I decided to go with large well known companies. In the past I had a bad experience when I used an unknown company who initially promised me a good rate and then when it came right down to the final loan I wasn’t getting the rate I was promised. I had already paid for an appraisal for my home and then had to go with another company. The appraiser charged me a hefty document fee in order to change the documents to another bank stating that she was hired by the first bank. 

The first options I researched were home equity loans and home equity lines of credit. The difference between these two options is that a home equity loan is a fixed amount with a fixed interest rate for the life of the loan. A home equity line of credit you can draw from several times and the interest rate varies with going rates. 

I wanted a lump sum all at once and I knew that interest rates are currently climbing so I choose a home equity loan. Home equity loans have two popular options. 15 year terms with a fixed interest rate for the entire term or 30 year payments with a balloon payment due in 15 years. The 30 year payments mean that the payments are calculated as if you have 30 years to pay it off but you owe a lump some or balloon payment after 15 years. For example let’s say I was borrowing $50,000 at a rate of 8.375% the payment on a 30 year due in 15 years is $380 per month and in 15 years I’d owe $37,000. This same loan amount with the same 8.375% rate on a 15 year loan has a payment of $489 per month and in 15 years it’s completely paid off.