Home Equity Loans
Home equity loans are a type of second mortgage and have a fixed term, usually between five and fifteen years at a fixed interest rate. You borrow one lump sum of money and make regular monthly payments over the life of the loan.
Home equity lines of credit are a type of revolving credit, like a credit card. You're allowed to borrow a certain amount over the life of the loan, and you don't have to borrow it all in a lump sum. Some lenders give you special checks, others provide a type of credit card that you use to access the money. As you pay off the principal you can borrow more. The interest rate is variable so your payments change depending on the current rate and your outstanding balance. At the end of the loan term, any unpaid balance is due. If you sell your house, the balance is due at the time of sale.
Home equity loans and home equity lines of credit can be very convenient. These types of loans are taken against the equity you have built up in your home. Your equity is used as collateral on the loan.
Debt consolidation is the number one reason people use home equity loans. According to the Consumer Bankers Association, 44 percent use them to pay off credit card and other consumer debt and 25 percent use them to make home improvements. Other uses include buying a car, education costs or other major purchases.
If you are looking for a home loan, you should shop around for the best rate. Mortage rates vary and they can change your payment drastically. Make sure you find the right rate and term for you when mortgage refinance. Doing research can help you a lot and protect you from a shady mortgage broker.
Choosing Type of Loan That is Best for You
Home equity loans are best suited for times when you need a lump sum amount. Lines of credit are best if you need the money at intervals, so you borrow only the amount you need, when you need it. Lines of credit can be dangerous if you have trouble controlling credit card debt because they work in much the same way as credit cards.
With a home equity line of credit, unlike a credit card, your home is at stake. If you get in over your head, you could lose your home.
Home equity loans are attractive for a number of reasons. Their rates are higher than interest rates on first mortgages but much lower than credit card interest rates. Interest on home equity loans is also tax deductible, another attractive feature. Closing costs for home equity loans are similar to those for first mortgages. Expect to pay 2 to 5 percent of the loan amount.
Researching & Applying for Your Loan Online
Don't hesitate to use the Internet to research rates and fees being offered by various lenders. Lenders who offer the most competitive rates tend to be online, so you can find the best rates much more quickly than you could by calling or visiting local lenders.
You can use the Internet to educate yourself quickly about various mortgage products and current rates. You can research or apply for mortgage loans or home equity loans online at eloan.com, lendingtree.com, bankrate.com or realtor.com.
