Using Home Equity
Taking advantage of existing equity in your home through an equity loan might seem an intelligent choice, especially in times of low interest rates. However, before you take a home equity loan to pay for children’s education, buy a car or just pay off credit cards, you should educate yourself about the risks associated with this type of finance, and whether it can work for you.
Contact several lenders, not just the ones that send you mail, call you, or knock on your door. Talk with banks, savings and loans, credit unions, mortgage companies, and mortgage brokers. Remember, brokers don’t lend money: they help arrange loans.
With an up-front home equity loan, or second mortgage, one can receive the full amount of the loan when it is opened, and pay it back in fixed monthly installments over the life of the loan. Up-front loans can be good for debt consolidation, buying a car, education, major home improvements, or paying large, unexpected bills, such as emergency medical expenses.
The best rates for a home equity loan or second mortgage go to those with higher credit scores. Because your credit plays such an important role in the loan process, it’s important to note that credit reports are not always right, and erroneous information can sometimes appear on your credit report, which may hinder you from getting a better home equity rate, or even a loan approval.
Consumers have compiled a massive amount of red ink in recent years, with household debt now equal to 21 percent of net worth, a 55-year high, reports the Federal Reserve. If interest rates keep rising, that could make it tough for a lot of people to pay off their IOUs.
On average, home-equity loans currently charge fixed interest rates of 6.6 to 6.8 percent for people with good credit records, reports Bankrate .com in North Palm Beach, Fla. You can find lines of credit with even lower rates in the 3.1 to 3.7 percent range. Just be aware that those line-of-credit rates aren’t fixed and almost certainly will rise.
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