Many home owners today are choosing to catch up on major expenses by seeking a home equity loan. The home equity loan interest rate that you are able to obtain will make a huge difference in the amount of money that you will be repaying over the term of the loan. In order to get the best possible deal, here are some things to consider.
What is a Home Equity Loan?
It is a method of financing whereby a homeowner borrows an amount based on the difference between the market value of the home and the amount still owing on the original mortgage – if any. An equity loan on your home may also be known as a second mortgage or borrowing against the property. The loan may be received as cash, payment of bills, line of credit or as collateral for other property.
Where Can I Find the Latest Information?
In the past, home loans were often issued by banks, savings and loan institutions or other mortgage lenders at the local level. Today, there are many equity loans available through the Internet. These loans may be associated with private or large commercial lenders. They may specialize in second mortgages or be available from a regular mortgage lender.
What Factors Affect the Interest Rate?
Many factors affect the rate of interest that will be charged on a home equity loan. The creditworthiness of the homeowner is just one example. The amount of collateral accrued in the home is also taken into consideration. There is often a cap placed on the loan-to-value ratio of the second mortgage. The term of the loan and the size of the loan will also affect the rate of interest charged.
Fixed Rate or Variable Rate?
A fixed interest rate is one that is determined at the beginning of the loan period and remains the same throughout the loan. It tends to be somewhat higher than a variable interest rate. A variable interest rate is one that can be adjusted up or down during the repayment period. The adjustment is usually based on an outside factor such as the prime lending rate.
Uses for a Home Equity Loan
THis form of finance is usually an option considered when the homeowner has upcoming major expenses and needs cash or credit. The loan may be taken to pay for major improvements on the home that will increase its value. It is sometimes used to pay for college expenses or for catastrophic medical bills. Another common use for the loan is to pay off credit card bills with a higher interest rate.
The loan term is the length of time allowed for repayment of the loan. It may be as long as 25 or 30 years in some instances, or a short as two or three years. The lender is usually willing to structure a loan so that you can afford the payments within your budget.
Before choosing additional loans or credit of any type, you should make sure that it is the best fit for your long-term financial needs. By seeking the best home equity loan interest rate, you will pay less money overall. You will be on a better financial footing so that you can pay the loan off more speedily.