If you have been in your home for a number of years and you have established some equity, you may be considering liquidating some of that equity. A great way to do this would be to go with a Home Equity Loan.
A home equity loan allows for you to borrow oou have established in your home through appreciation and monthly mortgage payments without having to touchff of the equity y your first mortgage.
This is why a home equity loan can also be known as a second mortgage. But before you go and start signing applications, shop around so you can find the best home equity loan rate out there.
There are two types of home equity loans on the market that you have to choose from. The first one is your standard home equity loan with a fixed rate, which of course, is based on prime. This loan you receive in a lump sum and begin to make monthly payments upon it immediately.
The second type of loan is the home equity credit line. This one, as its name implies comes in the form of a line of credit. The home equity line of credit has a rate that is variable, which means it will fluctuate with the prime rate. Many of them come with introductory rates for the first five or six months.
Once approved for a home equity line of credit, you will not receive it in the form of a lump sum. Instead you will receive it in the form of a check book giving you easy access to draw upon it in the amount you would like at your convenience. Once you do draw upon it, you will have to begin paying it back on a monthly basis. Normally in the form of interest only for the first ten years.
Suppose you were to receive a home equity line of credit in the amount of $25,000.00. If you only wanted to borrow $6000.00, than all you would have to do is write out one of the check’s the lender sent you and deposit it into your checking account. Your payment would than be based on the $6000.00 you borrowed from your line.
Keep in mind, home equity credit lines do come with a rate that is variable, and that rate is based on prime. So, if the prime rate goes up, the rate on your home equity credit line will go up as well.
On the other hand, if the prime rate goes down, than the rate on your home equity credit line will go down.
Mortgage companies are very competitive, so whichever home equity loan you decide to go with, it would be in your best interest to shop around so that you may compare rates.
After allowing for a few loan officers to assess your situation and offer you a rate and product, base your decision on the rate and product that best fits your needs and budget.
Tuesday, February 26, 2008
Shopping Home Equity Loan Rates
Market Conditions Affect A Home Equity Loan Rate
Curious about how a home equity loan rate is set? If you're planning on pursuing a loan, it's to your benefit to understand the market dynamics. It can save you money in the long run.
Like other rates, a home equity loan rate is determined by where the government sets their benchmark rates. Many people think that if the government lowers interest rates, home equity loan rates naturally go lower as well. Not so fast.
Typically, home equity loan rates actually rise when the Federal Reserve lowers rates. Why? When rates are lowered, the "Federal Funds" rates are lower. It's the rate at which large banks lend funds to one another and is called a "short-term" rate. But mortgage rates are long-term - up to 30 years. And longer-term rates are sensitive to expectations about inflation. So when short-term rates fall - like the ones the Federal Reserve controls - borrowing and spending usually increase, which can actually cause inflation to rise. Longer-term rates, like mortgage rates, can rise when concerns about inflation increase.
Markets are often ahead of the Federal Reserve. Interest rates are determined every day in active public markets.
If those markets believe the economy is slowing
Interest rates may fall as markets anticipate that the Federal Reserve might lower short-term rates. This happened in the last half of 2000 when mortgage rates began steadily dropping, even though the Federal Reserve left their short-term rates unchanged.
The opposite can happen as well
Mortgage rates can rise well ahead of the Federal Reserve increasing short-term rates.
Always Compare Rates
You can save money on a home equity loan rate by shopping around and comparing quotes from all the different lenders that will compete for your business.
The more questions you ask, the more likely it is you will understand how to deal and negotiate with lenders. It’s that simple. Shopping for a home equity loan rate is like shopping for an auto loan. It takes time and negotiating skills, but in the end, you will reap the rewards. Remember lenders set rates according to what they think you will agree to, which means, the rates are negotiable.
Home Equity Loan Rates - Pros And Cons
Have you owned your home for a least a couple of years? If so, you most likely have some home equity built up then. In today's real estate market, building up cash equity in your home happens rapidly.
Pros
A home equity loan can be a good way of paying for college education expenses.
A home equity loan is much easier to obtain than any other type of conventional loan.
Five tips when comparing home equity rates
1. Mortgage rates can change daily, and sometimes even multiple times per day depending on economic factors. For accurate mortgage rate comparisons, try to get quotes on the same day.
4. Compare the APR , and have lenders quote the loan points separate from other fees. In addition to standard title, escrow, or appraisal fees, lenders have other fees with names like, processing or underwriting fee. Property taxes, home insurance, and pre-paid interest are not lender fees.
5. Approximate credit scores can be used for general mortgage quotes. If you want a firm rate, the lender will need to run your credit report, but the rate is subject to change until locked. Lenders normally use the middle of 3 credit scores from the borrower who is the primary wage earner.
Credit is the key to 125% home equity loans
Homeowners with little, or no home equity, have the option of the 125% home equity mortgage loan, which can provide a loan up to 125% of the current value of your home. Even if you just recently bought your home, 125% home equity loans can provide money for home improvement, debt consolidation, or personal cash out. The key to getting a loan is a higher credit score.
By: www.crhome.com