Interest Rates Are On The Rise !
By: Adelama Ben | Posted: 08th November 2006
Home Equity is the difference between the market value of your residential property and the mortgage amount that you continue to owe. Home Equity Loans allow you to borrow additional money, using your residential property as collateral. It is not necessary for the home mortgage to have been paid off completely to obtain a home equity loan. In other words, home equity debt is a second mortgage. It allows you to turn the unencumbered value of your home into cash, which could then be spent on debt consolidation, home improvements or any other expenses.
There are two kinds of home equity debt. The first kind is called a home equity loan and the other kind is called home equity lines of credit. In a home equity loan, you receive a one-time lump sum that is to be paid off over a specific amount of time. The rate and the monthly installment amount remains the same until the end of the term. Once the money for a home equity loan has been received, you cannot borrow any further amount using your home as collateral.
Home equity lines of credit works more like a credit card. You are assigned a loan limit based on your home equity for a period of time that is set by the lender. During this period, you can withdraw funds as per your requirement anytime, within the overall loan limit assigned to you. You can choose to repay the principal with interest or the interest alone. If you repay the entire principal or part of the principal, you can use the credit again, just like a credit card. The interest rate on home equity lines of credit is a variable that fluctuates through the loan period.
Interest rates on home equity loans and home equity lines of credit are pegged a little higher than normal mortgage rates. The repayment period for home equity loans is usually shorter than the original mortgage, with a typical repayment period being 15 years.
The interest rates on Home Equity Loans vary widely between the lenders. Thus, you can save a lot of money if you select the right lender. While making a comparison between the lenders, compare the annual interest rates and all the fees involved including the closing costs, points paid upfront, and any annual fees you must pay. Also, make sure that you read and understand all the fine print contained in your loan contract and don’t hesitate to ask questions or negotiate the terms and stipulations.
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