With interest rates as low as they are, home equity loans have become very popular. With the Federal Reserve Board hiking interest rates up, there hasn't been a better time to lock in a low interest rate home equity loan while interest rates are still low. Locking in a low rate home equity loan today won't be the same as it was a year ago when rates stood at a 40-year low, but home equity loan seekers are still getting a very attractive rate. As the economy continues to grow, the interest rates will continue to go up.
A home equity loan is a loan that uses your home as collateral. Your equity in your home is the part of your home that you actually own and this is used as the guarantee for your loan. To figure out how much equity you have in your home you calculating the current value of your home and subtracting the unpaid part of your mortgage. For example, if your home is worth $150,000 and you have a $75,000 mortgage, you have $75,000 of equity in your home.
A home equity loan allows you to borrow money using your equity of $75,000 as security for the loan. A home equity loan, also called a second mortgage, reduces your equity in your home. Since you use your home as collateral if you default on the payments you can lose your home. This is the biggest drawback of the loan. In addition to paying interest, there are also costs that are associated with taking out a home equity loan, which are very similar to the expenses that you paid when you closed on your first mortgage. There are some lenders that will allow you to borrow 125% of the equity in your home.
There are some advantages of a home equity loan. One major advantage to getting a home equity loan is you will usually receive a very low interest rate. Since a home equity loan is secured by your home, it poses less risk to a lender so this lower risk is passed on to you in the form of a lower interest rate. Another advantage is that the interest that you pay on your home equity loan may be tax deductible. This is a big benefit of getting a home equity loan versus using a credit card.
Something that you should watch out for while looking or applying for a home equity loan is to make sure you get a fixed interest rate. This is probably the single most important thing while looking for a home equity loan. A lot of lenders want to give you a home equity loan that has a low variable rate. With there being talks of more interest rate hike I would not recommend getting a variable rate, even if the fixed rate home equity loan has a little higher interest rate, especially if you are going to have the home equity loan for an extended amount of time. Interest rates are really low right now but if you have a variable interest rate, when the interest rate goes up (it eventually will) you may be stuck with a home equity loan that has a higher interest rate than you wanted.
In short, it is very important to stay informed about mortgage rates at all times. By getting a low interest rate you can save thousands of dollars in interest over the life of the loan. So whether you have perfect credit or less than perfect credit, or if you are self employed or have a full time job, there are a lot of lenders that will compete for your business. Remember when lender compete you will win and always make sure that you are using a reputable mortgage company.
