Equity Loan Interest Rates
Home equity loan interest rates are known for being low and very affordable. Often called a second mortgage, this type of funding is secured by property or a building owned by the borrower, making the risk for the lender very low. Equity is simply how much a home is worth minus how much the owner still owes on the mortgage. Money can be borrowed against that equity for virtually anything from immediate needs like medical bills and car purchases to longer-term investments like home improvement. Because interest rates on second mortgages are lower than personal loans and credit card rates, many people borrow to consolidate high-interest debt. College tuition is another popular use. Although borrowing against a home is more expensive than federal student loans, equity loan interest rates are cheaper than private educational lending. The problem with using these loans is the risk for the borrower - if he is unable to repay the loan, he could lose his home.
Although individual banks set their own interest rates, most follow the Federal Reserve discount rate which is the base percentage banks use when borrowing money from the Federal Reserve to loan to individuals, businesses or other banks. Home equity loan interest rates generally follow the Prime Rate, based on a survey taken from various banks about the rates they are currently offering customers. These percentages change often, fluctuating with the market and the economy. The best place to start is with the financial section of the newspaper or various online websites. Banks also take into account the risk of the customer, his or her credit record, as well as the amount of the loan and what it will be used for. Equity lending typically begins with a base fixed rate. Sometimes, banks will add an adjustable rate on top of the fixed rate. This percentage follows the prime rate and is usually quoted as above prime or APR. Equity loan interest rates are also determined by how many points or fees are paid up front. This amount can include closing costs, transaction fees, bank charges for processing the application, underwriting fees or brokerage costs. The more money paid up front, the lower the percentage is applied on the entire loan.
Equity loan interest rates are highly determined by the type of loan requested. Fixed rate borrowing usually carry a set percentage and are repaid over a pre-determined period of time. If the prime rate is rising, borrowers can lock in a low rate and not worry about it increasing over the duration of the term. This type of lending is usually recommended for borrowers who have a specific purpose for the loan that requires a set amount of money. There is only one amount borrowed and one set of closing costs. A home equity line of credit (HELC) is an adjustable rate loan recommended for people who need cash on an ongoing or occasional basis. Borrowers can take money out as needed up to a set credit limit using special checks or a credit-type card. Percentages are usually lower than fixed rates, but since they follow the prime percentage, the amount can rise and fall pretty rapidly. Most HELOC have an interest cap, which limits how much the percentages will increase throughout the duration of the term. Repayment can be made at any time. Installments depend on how much was borrowed and the current APR. Most borrowers have to repay the amount in full before selling the property.
One of the most attractive qualities of equity lending is the opportunity to deduct the interest on federal taxes. Recently, interest is tax deductible up to a maximum of $250,000, up from $100,000. Tapping into home equity began rising in the mid-1980s when property values began to rise and equity loan interest rates were attractive. Borrowing surged after 1996 when deductions for interest on other types of loans were restricted. Deductions aren't hinged on any particular use of the money. Simply use the Schedule A form when filing taxes. However, to benefit from this tax deduction, individuals must itemize their deductions. If itemizing their deductions doesn't add up to an amount greater than the standard deduction, claiming the deduction is worthless.
Repayment terms vary depending on how much was borrowed and the type. Second mortgages are generally shorter than first mortgages, about 5 to 15 years, compared with a 30-year traditional mortgage. Some banks penalize borrowers for early payment or retiring early. Others require large balloon payment to keep monthly installments low. This balloon payment is the final payment but includes the remainder to be paid in full. HELOC can be repaid at any time, but fluctuating rates change the installment every month, making it very hard to budget. No matter how attractive equity loan interest rates are, if a borrower fails to pay the debt, the bank will take the collateral - the home. "Who hath prevented me, that I should repay him? whatsoever is under the whole heaven is mine." (Job 41:11)
Homeowners who are considering tapping into their equity for whatever reason do need to take caution. Consider the benefits against the risks. Home equity loan interest rates may be very appealing but is it worth the cost of a home? Only responsible borrowers, who have a steady source of income and can repay the amount in full, should consider this option. Regardless, individuals should shop around first. Get competitive rates and know all the fees and terms involved. Factor in the total payout of the loan, not just the interest. The Internet provides an easy avenue to compare multiple lenders and financial institutions. Be careful not to borrow more than the home is worth. This leads to negative equity, making it difficult to sell the home later.
Fixed Mortgage Interest RatesFixed mortgage interest rates are a popular mortgage type because of the security a fixed monthly payment offers the purchaser of a home. A fixed loan rate is typically a tad bit higher than an ARM or adjustable rate mortgage, but unlike the ARM, which may increase in the years following a determined amount of time; the fixed mortgage interest rates remain the same. When percentage rates are low, people rush to their mortgage brokerages to either refinance to a fixed interest rate, or are more apt to purchase a home in the years that low rates exist. When the industry rates rise, their mortgage contract is safe at the low fixed interest rate they secured. Most fixed rates come with a 30-year home mortgage. There are 20-year and 15-year mortgages, but the 30-year is the most common. Those that are seeking a 30 year fixed interest rate mortgage should be sure that their note has no pre-payment penalties.
With the lower interest rate, it may be easier to set money aside to pay off the note early. Choosing the right mortgage brokerage with which to do business is the key. There are a plethora of fraudulent mortgage brokerages in business, vying for home purchasers seeking a low monthly payment. Steer clear of places that offer payments so low, it is hard to believe. Do the research and understand what the going fixed home loan interest rate is for the pertaining credit score, and expect a rate in that area. When the rates seem extraordinarily high or low from the expected rate, try someplace else. It is suggested that all buyers in search of a good note rate, pull a copy of their credit report from all three nationally recognized credit bureaus. These three bureaus are Trans Union, Experian, and Equifax. Once all three credit reports have been pulled, checking for accuracy is the next step. Many times errors on credit reports account for over 30% of lowered FICO scores.
The interest rates on most loans are directly based on the borrower's credit reporting score. Maintaining a high score, or improving a credit score should be done prior to making application for any loans with a fixed home loan interest rate. Each lending institution will want to pull its own credit report before giving an estimate interest rate. Allowing multiple companies to pull credit reports will lower a credit score. Verbally noting the credit score, and requesting a fixed home loan interest rate quote should be done instead. This way, the only credit report that will be pulled by a lending institution, is the one the borrower has chosen to do business with. It is important to know all three scores though, because each lender will use a different credit reporting agency, or a combination of all three. Fixed mortgage interest rates are among the most popular types of mortgages, so lenders should know off hand what the rates are averaging. Once a borrower has decided upon a particular lender, they must provide information about the house they intend to purchase, and also information about their income. This information will determine the amount of the loan that they can be approved for. Sometimes, if a house is not worth what the owner is asking, the bank will deny the loan, and instead offer a lower amount, which would cause more out of pocket expense by the buyer.
Sometimes a house will be appraised at more than the asking price, and the buyer can put zero down and have all the expenses of closing wrapped into the higher note amount. The problem with this is that if a quick resale is needed, by the time real estate fees are paid, the new owner will most likely take a great loss on the sale of the house. The best way to get a good low fixed home loan interest rate is to improve a credit score to 700 or higher. This can be done quickly by fixing any errors or mistakes on the report, and by buying down debt on any revolving credit card accounts. A credit score can improve greatly in one month by having a 20% or lower debt to credit limit ratio. If the credit score is high because of a high ratio, then finding alternative ways to pay down the debt is advised. A credit score can improve as many as 30 points because of a lowered debt to credit limit ratio. The debt must be repaid anyway; so paying it down before purchasing a home is a good idea, even with low fixed mortgage interest rates. The Bible says in Romans 13:8 to "Owe no man anything". This is good advice, since debt can cause a heap of trouble and hurt a credit score when trying to buy a home with low fixed interest rates.