Mortgages are one of the most commonly used methods of raising money quickly. Home equity loans are mortgages taken against the equity in your home. They come in handy when you need a large sum of money. A special advantage of these loans is the low interest rates offered on them when compared to other types of loans. This is because a home equity loan is secured using your home as collateral.
Like any other loan, the most important consideration in a home equity loan is the interest rate that you will be charged. The interest rate offered by a lender depends on a number of factors including your credit score, existing mortgage on the house and your repayment history with banks.
You will have to choose from fixed or variable rates offered on your home equity loan depending on your assessment of the interest rate scenario. Variable rates are typically a little lower than fixed rates because they offer more protection to the lender, as the rate of the loan can be adjusted upwards if the market lending rates move up in the future. If present rates are low, it is better for borrowers to opt for fixed rate loans, so that they do not have to pay higher rate even if the loan market heats up in future.
When zeroing in on a loan, it is usually a good idea to negotiate with your lender if you think you are not getting a good deal. Lenders are often willing to negotiate to a certain extent and can give you lower rates because a home equity loan is backed by the house, which makes it safer and less risky compared to the unsecured ones.
Home equity loans enable you to take up to 80% of the market value of your home as loan provided you have that much equity. Very often home equity loans are second mortgages on your home. If the loan has been taken at a variable rate, it is advisable to repay the loan sooner, especially if the market trends suggest that the rates will go up significantly in near future. If you have a longer repayment period, the loan will entail a higher monthly interest payout. In effect, you will end up paying more for your home with a longer term loan and it will be more expensive if it's a second loan on your home.
If you think you are not well versed with the financial aspects of how home equity loans work, you should not hesitate to take advice from experts such as mortgage agents or loan counselors. It is crucial to find an expert who can offer sound advice with your best interest at heart. To ensure this, you should hire a loan expert who charges a flat rate, ie whose fee does not depend on the amount of loan taken. Also, make sure your loan counselor or agent is knowledgeable enough to update you on current interest rates and trend expectations for the future.