As the owner of your own home, you have a very important resource available to help you weather many financial storms including the current global credit crunch. With the credit crunch in the news on a daily basis, it’s a good time to take a look at the equity tide up in your biggest asset – your home. A home equity loan or home equity line of credit (HELOC) is a loan, which is basically granted using your house’s value as collateral. The size of the loan will depend on the difference between your current mortgage value and the current value of your home.
A fixed rate home equity loan is a great way of freeing extra cash which you can use for a variety of purposes including debt consolidation, wealth creation through good sound investment of capital, education, home improvement etc.
But before you decide on a fixed rate home equity loan or on a variable rate home equity loan its best to compare the pro’s and cons of each type so that you can make the right decision for you.
With your home equity loan being one of the biggest long term financial decisions you’ll make, its best to get the decision right from the very beginning. Getting it wrong could literally cost you thousands.
The question is whether to consider fixed rate home equity loan or a variable rate home equity loan.
Fixed Rate home equity loan
A fixed rate home equity loan is a loan where the interest and thus the repayment are fixed at a certain interest rate for a certain period. The period varies but can be anything from two to five years to the length of the loan. The pros of a fixed rate home equity loan are:
- They provide certainty with regards to payments
- You can budget easily if you sign up for a fixed rate mortgage
- Even if the interest rate climbs, your payments remain constant
Cons of a fixed rate home equity loan include:
- Your payments do not decrease if the rate decreases
- You cannot take advantage of market up and downs
- Initial rates on the fixed rate mortgages are usually higher than variable rate deals.
A fixed rate home equity loan can help to cap your payments and they make it easier to budget. The best time to take advantage of a fixed rate home equity loan is when the rates dip a little. You can then refinance your home equity loan with fixed rate home equity loan and take advantage of the fact that rates will climb.
Variable Rate home equity loan
As opposed to fixed rate home equity loan, the interest on a variable rate home equity loan changes all the time. This means that when interest rates climb, so does your home equity loan repayment.
The pros of this type of home equity loan is that if rates fall, so does your repayments, but unlike fixed rate home equity loan, it is very difficult to budget for payments which fluctuate. This type does however allow you to take advantage of changing market conditions.
If the current rates are high, then its best to go for a variable interest rate loan and then once the rates fall, to try to change it to fixed rate home equity loan.
For more information please visit http://www.low-rate-payday-equity-home-loans.com for more information
Help answer the question about home equity loan
Can I pay off a home equity loan with my credit card ( lower interest rates!)+ how do I do it?I have an offer from a credit card co with a low interest rate, 2% lower than my home equity loan interest. I would love to get rid of the horrible 8.75% home loan interest on $12,000. What to do?
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With two bachelors degrees, one in business one in law, Brigitta writes articles on various topics
For more information please visit www.low-rate-payday-equity-home-loans.com” />our website for more information
Lenders rarely change the terms of a loan but inquire. Probably you will have to refinance to a fixed rate mortgage.
There are a number of factors that go in to the scoring model and on time payments is a major one, but not the only one.
Having a new account can be a risk factor all by itself. Since it is a closed end loan, the balance is near the limit and it has probably only just started reporting.
I wouldn't freak out or anything. A 740 is still pretty darn good. My scores boucne around with little rhyme or reason.
Sometimes opening a new account can have a positive affect. I went to Home Depot to buy $300 worth of windows and walked out with 20K in new credit. Having the additional available credit had a very favorable affect on my scores. I don't have to use the credit if I don't need to.
Also, if you have a balance on a credit card that is more than 50% of the limit, you may want to pay it down or transfer some of the balance to another account so that none of your balances are over 50% of the limits.
Again, a 740 is a great score so you really don't need to be worried about anything and it will probably go back up in a month or two once the new loan is a little more seasoned.