Is A Fixed Rate Home Equity Loan The Best?

There are basically two main types of home equity loans - the fixed rate home equity loan and the adjustable rate home equity loan. The latter has rates that can vary from time to time, and in recent times it has been discovered that interest rate increase are on all time high, these adjustable rates increases frequently at an indeterminable frequency. But that is not the case with fixed rates, in this case, the rate remain unchangeable throughout the life time of the loan. This is definitely the better out of these two types of equity loan.

The fixed rate home equity loan is preferred because you know exactly the amount of money you are to repay from the beginning and this amount remains constant, that way, the amount of money you will payback every month also remains constant, unlike the variable rate of the other that makes it impossible to determine exactly what to repay monthly on a constant rate. With the fixed rate option you can strategize and plan your repayment program since you already know that the amount of money owed is not subject to incremental change - hence one is able to repay easily.

There is also a benefit of having a large amount of money to finance project, invest, consolidate debt etc. This is because the fixed rate home equity loan gives the whole amount of the loan (it is usually higher than the value of the house) fully in one payment. But, the adjustable rate home equity loan allows one to borrow small amounts on different installment. The fixed rate is better since you will have sufficient funds at your disposal for investment, instead of collecting little amounts that can easily be wasted.

Even though the interest rates of fixed home equity loans are higher than the variable ones, it is still better and preferred; because in the long run, you will end up saving money since you are able to lock-in the interest rate (i.e. the rate does not increase) throughout the period of the loan. When applying for this type of loan, choose the short term repayment plan; this way you will save more money than when it is a long term loan. This is because the summation of the interest rate throughout the term will be lower when it's a short term loan than when it is a long term loan.

For more information about Fixed Home Equity Loan, feel free to visit us at: http://www.about-home-equity-loans.com/article-1-Fixed-Home-Equity-Loans.html

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Home Equity Loans Spotlight

Home equity loans are taken where the borrower uses the home as collateral. These loans may be useful for home repair, medical bills or even for education. Most home equity loans require good to excellent credit history. Home equity loans come in two forms, closed end and open end.

Both of the above types are considered as second mortgages as they are secured against the value of the property just like any mortgages of traditional type. Home equity loans are usually (but not essentially) for a shorter term than first mortgages. In United States, Home equity loans interest can be deducted on one's personal income taxes.

Closed end home equity loan

The borrower will receive a lump sum on sanction but cannot borrow further. The amount of money that can be borrowed are normally depends upon certain variables like appraisal value of the collateral, credit history of the borrower, income source of the borrower among others.

Normally, the borrower can take up to 100% of the appraised value of the home less any liens, although there are lenders that may go above 100% when doing over-equity loans. However, state law governs in this matter. Closed end home equity loans have fixed rates normally and generally amortized for periods up to 15 years.

Some home equity loans offer reduced amortization and at the end of the term a balloon payment becomes due. These larger payments may be avoided by paying minimum payment or by refinancing the loan.

Open end home equity loan

Revolving credit loan of this nature is also referred to as a home equity credit loan where the borrower has the option to choose when and how often to borrow against the equity in the property and the lender setting a initial limit to the credit line on the basis of some criteria as mentioned above for closed end home equity loans.

Similar to closed end equity loans, it is possible to borrow up to 100% of the value of the home less any lien. These line of credit are normally available up to 30 years at a variable interest rate. The minimum monthly payment may be as low as only the due interest rate and the interest rate is based on the prime rate plus a margin.

Home equity loan fees

Following are the list of possible fees that may apply to home equity loan: Appraisal fees, originator fees, stamp duty, title fees, arrangement fees, closing fees, early pay-off, and other costs are added in loans. Surveyor and valuation fees may also apply to loans, but some may get waved. The survey and valuation costs can also be reduced provided the borrower provides his own licensed surveyor to inspect the property under consideration.

Title charges in secondary mortgages or equity loans are fees for renewing the title information. The borrower should read and ask questions about the fees being charged to make himself sure about the fees since all these loans have some sort of fees tagged

Joe Kenny writes for Rebuild.org, offering home equity loan deals, they also have some great offers on mortgages

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