Equity Interest Rates—Looking For A Good Deal

2007-03-08 10:33:40

( Financial )



Equity mortgage loans have become popular modes of financing among homeowners and financial institutions alike. Homeowners like the low cost and tax deductibility features of these loans. Lenders like the low risk and the income potential. If you own a house and do comparison shopping on equity interest rates, you’ll be able to hammer out a good deal when getting an equity mortgage loan.

Choosing Equity Interest Rates

When considering equity interest rates, you have two choices: fixed or variable. These two rates have one reference point – the prime lending rate, which is the lowest rate banks offer to their most valued borrowers. To determine the interest you pay, your lender will add a margin on the prime rate. You will want that margin to stay within three percentage points above that index.

If you intend to pay the loan over a long period, you are better off with a fixed rate equity loan. The fixed rate equity ensures that your interest rate will not change during the entire life of the loan. Variable rates move with the index – you may be surprised to find you’re paying more interest than you thought. Loans at variable equity interest rates are better if paid within the short term.

Totaling Up the Fees

Finding your best deal means also considering the lender’s fees and charges, not just equity interest rates. You must find out from your prospective lender the fees and charges levied on equity mortgage loans. Tally them up and compare.

Some lenders require you to pay closing costs, which include application fees, origination, appraisal, title search and verification, credit check, notary and legal fees. If you’re taking out a home equity line of credit, the lender may charge a maintenance fee of 50 to 100 dollars just to keep your credit line open, even if you have not drawn upon it.

You may find that a loan with higher interest but lower fees may turn out to be a better deal than one with lower interest but high fees.


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