Equity Loan Fixed For A Term Is Better For Long Term Needs

2007-03-08 10:33:40

( Financial )



After having paid your mortgage faithfully over several years, you have built up equity in your home. You can now qualify for an equity loan in your home. That is, you now have the privilege of borrowing against that equity at low interest. To really benefit from low equity loan rates, it is best for you to get an equity loan fixed for a set term at a fixed interest. This will best suit your long term needs.

Banks, savings and loans, credit unions and other financial institutions have entered the home equity loans market, so you now have many options when you shop around for the best loan. Usually, booking your home equity loan in the same lender where you first mortgaged your home will save you money, both in interest rate and service fees. Still, it pays to ask around so you can negotiate better.

If you secure an equity loan in the form of a credit line, you can get the cash as you need it. This is called a home equity line of credit (HELOC). You should keep in mind that in lines of credit transactions, the equity loan rates are indexed to the prime lending rates, which are influenced in turn by Federal Reserve Board rate decisions. So, it can be very risky to borrow large amounts of money for long periods of time using a home equity loan in line of credit form.

Large amounts to be left unpaid for long periods would be less risky if you get an equity loan fixed at an agreed interest for the duration of the loan. Loans of this kind are called simply home equity loans. With a home equity loan fixed for interest, you don’t have to worry about short-term variations in lending rates and you can predict the amount to be paid in your monthly statement.

Equity loan in line of credit form is okay if you plan to repay the loan on short-term basis or within three years. These equity loans would be good for repaying credit card debt.

An equity loan fixed for a set term is best for long term expenditures, like renovating your home or paying for a college education.


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