| Add
Home Equity Loans Wizard to your Favorites
Know your
Interest Rates
One of the most important costs of your home
equity loan is your interest rate. This one factor determines
how much your monthly payments will be, and how much you will
be paying over time. When shopping for your loan, make sure
you understand what interest rates are and how they work.
Annual Percentage Rate (APR)
APR is not the interest rate on a loan. It is a calculated
figure that includes the interest rate along with other associated
fees. This figure is affected greatly by the interest rate,
however, and it is the best way to determine which lender
has the better deal.
If you are comparing APRs between multiple lenders, be sure
that all the terms are the same. Even though they might offer
the same APR, one loan term could be 5 years -while the other
was calculated for 10 years. The longer the term; the more
money you will be paying in the long run.
Variable Rates
Variable interest rates are rates that do not stay the same
throughout the term of the loan. You should be careful when
dealing with this type of interest rate. If it changes your
monthly payments and APR can go up significantly.
Variable Rates are generally lower than the prime rate at
first. Borrowers are attracted to this rate but it is scheduled
change after a certain amount of time. The term before a variable
rate can change, is dependent on lender (generally every 6
months to 1 year).
There are usually restrictions as to how much the rate can
increase each time. Make sure you know exactly what can affect
your variable rate and how. You should also calculate the
rate changes to see how it will affect your monthly payments,
and to see if you will be able to afford it.
One of the best deals we've seen on a variable interest rate
deal (which I took advantage of once) had a cap of 1% per
year with a maximum of 5% over the term of the loan. However,
if you do not discuss the maximums with your financial advisor
and your lender beforehand, you may be in for a world of hurt
later.
Introductory Rates
An introductory rate is usually associated with home equity
credit lines. These rates are temporary interest rates offered
as a kind of signing bonus to the borrower. The introductory
term generally lasts between 6 months to 1 year and can increase
dramatically after that time period has elapsed.
Lenders will offer introductory rates several points lower
than the prime rate in order to get the deal. To avoid not
being able to afford you loan payments you should know exactly
what interest rate will follow the introductory rate and make
calculations to determine whether or not you can afford the
new payment.
You should find out if it is a fixed or variable rate and
how much it will increase your monthly payments. Be aware
also, that there are typically provisions in the loan contract
that might prematurely end your introductory rate period if
you miss or make a late payment.
Fixed Rates
A fixed interest rate is the safest way to go when taking
out your home equity loan. This rate does not change in most
cases. The important thing, is to find a fixed rate that is
suitable for you. Even with fixed rates, a lender might have
a provisions in the loan contract to increase the rate if
you violate certain policies.
Be sure to look for these terms and negotiate to have them
removed.
Home
Loan Resources Index
Back
to Home Equity Loans Application
|
