Home Equity Loans: How to Find the Best Interest Rate

Sep 17
11:31

2012

Devora Witts

Devora Witts

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Using home equity loans to secure the cash needed to get out of financial hot water is a viable method. However, getting the best interest rate possible is another thing, requiring some careful consideration.

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When it comes to accessing large funds quickly,Home Equity Loans: How to Find the Best Interest Rate Articles the value tied up in a home is a prime source. With every year that a mortgage is repaid, and with every year that property prices increase, the size of that value increases. Through home equity loans, this can be turned into the cash needed to alleviate financial pressures.Of course, there is always a risk associated with taking on a loan. It is true that the provision of collateral or some kind of security makes getting loan approval much easier, but failure to repay that debt will mean losing that collateral. So, any security involving the home can place the home itself at risk.The cause of most trouble when repaying a loan is the interest rate it comes at, with high rates ensuring the monthly repayments sum are high. The principal decision then is whether to get home equity loans at fixed rates or at variable rates.Fixed vs Variable Interest RatesSimply explained, fixed rates never change while variable rates change with the markets, so they may decrease in good times and increase in bad times. To that end, deciding on which kind to get for a home equity loan is a key part of ensuring affordability.Getting loan approval is not made any easier or harder by the choice made. After all, it is the security provided by the equity that the lender is chiefly interested in when assessing approval. Variable rates simply mean that the amount to repay can change.But, with a home equity loan at fixed rates there is no worry over the effect market developments might have. The rate stays the same, and so the repayment sum stays the same. This makes budgeting much easier to do.Points to Consider When Choosing RatesSo, how can the right interest rate be secured when taking out a home equity loan? Well, unfortunately there is no guarantee that a rate today will be higher or lower 12 months from now, so there is a gamble involved. However, there are some points that should be considered: principally, the term of the loan and the available income.The term of the loan is important because it sets the scope within which market changes will have any relevance. For example, getting loan approval on $50,000 is fine, but repaying it over 3 years, 5 years or 10 years makes a major difference to the repayment sum. Generally speaking, the fluctuation in interest rates over 3 years is never major, but over 10 years might be.When a short term is preferred, the available income is also not likely to change much, so a home equity loan at fixed rates is arguably the best option. However, with long term loans, a variable interest rate is perhaps best as there is time to see rates fall, even if they initially increase.How to Find the Best RatesThe best way to find the best rates is to ask. When approaching lenders about a home equity loan, it is always worth trying to negotiate a lower interest rate. By speaking to the lender, it may be possible to lower the rate by a quarter or even half a percent, though it is always necessary to examine the consequences of any agreement.Of course, getting loan approval does mean taking on extra debt so even a small reduction can make a real difference - especially on sums as high as $50,000. Generally speaking, the best rates are available from online lenders, with comparison sites allowing for fast and simple comparisons.But whether a home equity loan at fixed rates or variable rates are best depends heavily on the situation of the particular borrower.