Home Equity Loans

Home Equity Loans - Join The Fun

Equity is the difference between your home's appraised -- or fair market -- value and your outstanding mortgage balance. If you have equity in your home, borrowing against it might be a very effective way to get some things you need at a good price. This practice of borrowing against the value of your home has become very popular, so much so that it has its own kind of loan named after it: home equity loans.

Interest, as they say, is the most expensive part of home loans. It is no different for home equity loans, whose interest can be mind-blowing. Competition among lenders has many of them offering low introductory "teaser" rates, one or two points below prime, that are good for about six months - the teaser rate on Countrywide home equity loans is significantly low but lasts just a sinlge month. After that, the rate is adjusted according to a public index that reflects interest trends. In such situations, the cost of home equity loans can rise or fall, depending of course on how much is lent.

Home equality loans and Wall Street

Most banks use The Wall Street Journal prime rate or the prevailing rates on Treasury notes as the basis for their home equity loans interest rate calculations. The lender adds a margin, or fixed number of percentage points, to the index to determine the new home equity rate each time it is adjusted. This can happen once a year or more. Each point is equal to 1 percent of the loan, so if you're borrowing $10,000 one point would be $100.

By law, variable-rate home equity loans must have a cap on how high the interest can climb over the life of the loan. Most variable-rate lines of credit also have a cap that limits how much, and how often, the interest rate can change during the course of a year. This cap typically prevents the rate from jumping more than two percentage points in a year. Such is the nature of the home equity loan. Indeed, sometimes it can be best not to gamble, but if you find yourself against the wall, perhaps a home equity loan is the way to go for you. Your home equity line of credit increases as you continue to pay off your mortgage, and you can use that credit and low home equity rates to make sound financial investments that will improve your future. Use your home equity lines of credit to take out loans for home improvements, debt-consolidation, or any other expenditure. The choice is yours, and making wise decisions will only improve your financial standing.

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