Equity mortgages usually cost more than bank mortgages, but how much more varies a lot from one borrower and lender to the next. Understanding what drives the price helps you get the best deal, and judge whether the cost is worth it.

Why they cost more

An equity lender is accepting a file a bank’s formula wouldn’t. That extra risk, plus the extra work of assessing each situation individually, is priced into the rate and fees.

What moves your rate

  • Type of lender. Alternative lenders and credit unions are usually less expensive than private lenders. See who offers equity mortgages.
  • How much equity you leave. Borrowing less of your home’s value generally earns better pricing. See how much equity you need.
  • First or second mortgage. Second mortgages generally cost more.
  • The property. Typical city homes usually price better than rural or unusual properties.
  • Your credit and income story. A recent setback can raise the price; a clear recovery can lower it.

Fees to expect

  • Lender fee: often charged by alternative and private lenders, usually as a percentage of the loan.
  • Broker fee: sometimes charged, especially on private loans. It should be disclosed in writing up front.
  • Appraisal: usually paid before approval.
  • Legal fees: your lawyer, and sometimes the lender’s.
  • Penalty on your current mortgage, if refinancing means breaking it early.

Lender and broker fees are often taken from the loan at closing, which means you borrow them, too.

Compare total cost, not just the rate

Ask each offer for:

  1. The rate and monthly payment
  2. Every fee, in dollars
  3. The total cost over the full term
  4. What you’ll actually receive after fees
  5. What it costs to renew or pay off early

A lower rate with higher fees can cost more over a short term.

Is the cost worth it?

That depends on what the money does for you. Paying off high-interest debt, finishing a buyout or bridging to a bank can justify the cost. Spending it on day-to-day expenses usually can’t. See the risks of borrowing against your home.

This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.