Equity Loans and rising interest rates.
Long term cash out refinance on a fixed rate of interest is
usually the first choice of most homeowners when it comes to
tapping in the home equity loan in their house. Cash out refinance
mortgage comes with the advantage of lower monthly payments,
which is one of the biggest attractions for most homeowners.
But alongside comes the disadvantage of paying a larger amount
of total interest over the mortgage because of the long term.
Taking a look at the
current market trends, where the interest rate is constantly
rising, cash out refinance doesnt seem to be the most desirable
form of borrowing against home equity. If you have taken your
first mortgage a few years back then probably you are on a terrific
rate, and getting your mortgage refinanced will put you on to
higher interest rates, taking away all your savings and increasing
your monthly bills. Surely, that doesnt sound to be the most
practical method of generating finance from your home equity.
The value of your house
has definitely appreciated since the time you bought the house
using your first mortgage. And this value appreciation has given
you the opportunity to use this equity to improve your personal
finances and support expensive requirements like home improvements
or childrens education.
But unfortunately, the
current upswing in the interest rates is restraining your chances
of benefiting through cash out refinance. In this scenario,
the most practical and sensible solution is to use a home equity
loan or a home equity line of credit. Both these can serve as
a good short term solution for your financial problems. And
the sooner you payback; the better it will be your financial
standing in the long run.
Why is a home equity loan a better choice
What ever be your choice, that is a home
equity loan line of credit or a fixed rate home equity
loan, the amount is usually smaller than the mortgage and so
you can pay it off faster. With a smaller payback term the total
amount of interest, which you have to pay over the loan will
also be small. The home equity line of credit comes on an adjustable
rate and works more like a credit card, allowing you to make
borrowings for short periods and keeping your cost to a minimum
because you have to pay interest only on the money that you
withdraw and only till the time you paid it back. A home equity
loan is on a fixed rate of interest and for a fixed term with
fixed monthly payments. Using these alternatives gives you the
ability to save the long term interest dollars which you would
have sacrificed with the mortgage refinance.
As against a cash out
mortgage refinance, a home equity loan or own equity line of
credit is easier and faster to close and requires less documentation
and lower fees. In most cases the lending institution will not
even ask for a fresh appraisal of the property, as they can
use the appraisal from the previous mortgage, thereby letting
you save a good amount of money.
Down the road when the
interest rates on mortgage loans become more amicable, the homeowner
can roll in the home equity loan with his first mortgage into
a refinance mortgage. The currently rising interest rates will
definitely sober down in a few years and at that point of time
you can get your first mortgage refinanced and payoff your home
As a homeowner you have
plenty of options to borrow money against your home, but with
the rising interest rates a flexible line of credit or a fixed
rate home equity loan are the best solution. These two methods
allow you to use the equity without costing you added cash over
the long term.
Understanding home equity loan rates.
The interest rates on
home equity loans fluctuate on a daily basis in tandem with
the interest rates set by the Federal Reserve. Since 2004 when
the interest rates on home equity loans were at a 40 year low,
there have been fifteen consecutive raises in interest rates.
For a homeowner it is essential to understand home
equity loan rates when they
planning on a home equity loan, so as to evaluate and examine
the different loan programs. Most of the home equity loans are
on a variable rate of interest with usually a low introductory
rate that takes a sudden rise after the set time period, while
there are just a few home equity loans which come on a fixed
rate of interest. There is a lot of variation in the home equity
loan rates across different programs and across different lenders.
Speaking to different lenders and educating yourself about the
different home equity loan programs can be very rewarding. There
are certain websites which can help you to make comparisons
between different loan programs being offered by different lenders,
but of course you should not stick just to what these websites
say and carry out your personal research as well.
Sometimes the structure for home
equity loan is difficult to comprehend; making it difficult
to find out how much will be the money that you will spend on
the loan. Most of the low introductory rates experience a sudden
jump when the introductory period is over. To keep yourself
at minimum risk, you need to understand how the rates are capped
and what will be the kind of variations at the end of each period
and the variations over the entire life of the loan.
The most effective tool
for comparison is the annual percentage rate which indicates
the total cost of borrowing on a yearly basis. But apart from
the APR you also need to take a look at the different fees,
points and closing costs associated with the home equity loan
because as against second mortgage the APR for home equity loans
does not include the additional costs.
Lastly, when interest
rates turn hostile, drop the idea of using a mortgage refinance
and rather pick up a home equity loan or a home equity line
of credit. And before you make the final decision contact several
lenders and compare different programs to get the most suitable
1. refinance mortgage loan
Refinance with adjustable rate mortgage. An adjustable rate mortgage is a home loan which comes with appreciable...
2. signature loans
There are a number of ways by which people can borrow money. There have been some new ways of borrowing money. O...
3. loans student
Payback time for student loans.As June end approaches every year, most college graduates come face to face with ...