Home equity loan rates are dependent on several factors because it is a type of second mortgage that allows you to borrow money against the equity of your home. You can own your home free and clear or have a standard first mortgage. Regardless a home equity loan lets you utilize the equity in your home for a second mortgage.
Help with Home Equity Loans
Home equity loans can appear complex when you’re new to this. There is a breakdown below that teaches you more about the variables used to find best home equity loan rates.
The Value of Your Home:
Balance of Your Mortgage:
Does your current home have a balance on the mortgage? The outstanding balance of your current mortgage can help to determine what amount of available equity you have in your home.
Amount of Loan Required:
Eliminate some of the guesswork involved with shopping for loans by knowing how much you need exactly and where you can make do without.
Your Credit Score:
Knowing your credit score right off the bat can give you an idea of what you can and cannot qualify for. Generally if your credit score is higher than 740 you are more likely to be eligible for more options and better opportunities when it comes to home equity loan rates and loan amounts.
Your Current Location:
Depending on your zip code you may find more or less number of quality lenders in your area. In some cases it may be more beneficial to go outside your area to acquire a loan.
Home Equity Loans Rates Terminology Explained:
Common terms uses when discussing rates.
Loan to Value (LTV)
Loan to value (LTV) is the percentage of your homes value your bank will lend out. Your home will be used for collateral. Lenders vary in what percentage they offer for your home’s value. These generally range from 60% to 80% of your home value. For example if a lender offers 70% of your home’s value, it simply means the lender will give you 70% of what your home is worth. If you have a home equity line of credit, you would add that to your outstanding mortgage and stay under the 70% combind. Few lenders may say a percentage specified by an upper limit in dollars like $150k. What this means is that the lender will lend you the percentage of equity up to $150k max.
Fixed and variable rates and how they differ
Fixed and variable rates only matter when paying back your loan. You get two options to pay back on your term. A Fixed rate stays the same throughout the entire term whereas a variable rate can fluctuate going up or down during the term. Which means your payments will always be different from month to month.
Introductory rates
Introductory rates are offered by few lenders where the interest rate is reduced from that of the standard rate. This introductory rate is usually for a fixed amount of time to entice you to go with them as your lender. Remember this rate will not last for ever, its just for a few months.
Prime rate
Prime lending or Prime rates are basically the lowest commercial interest rates charged by a bank. These are important when choosing variable interest rates as your payback option, as the variable rate is usually based on the prime rate plus a point or two.
Minimum credit score
The bare minimum a lender will accept when determining your eligibility for a loan.
Withdrawal or draw requirements
Also known as “Req. Draw.” few lenders may require you to withdraw a minimum amount, each time you need to get money. This is known as draw requirements.
Home Equity Loan FAQs
For more clarity about home equity loans, brows through the following FAQ’s.
What does HELOC Mean?
Home equity line of credit (HELOC). It is based on the equity in the borrower’s home. They work just like credit cards allowing you to take out money and pay it back at your own pace.
How Does a Home Equity Loan Differ from HELOC?
Home equity loans are also based on the equity in the borrower’s home. However unlike HELOC, you receive all of the money upfront and then make equal monthly payments of principal and interest for the life of the loan just like a mortgage.
Where Can I Get HELOC loans?
There are many lenders that offer HELOC loans, depending on your area there may be more or less options.
Is HELOC a good idea?
In most cases of borrowing, HELOC loans are the best choice. Some common examples include home renos, education funding etc. This type of loan is very flexible and allows you to use as much as you need and pay back with ease.
Does a HELOC Loan Expire?
HELOC Loans don’t generally expire but there may be draw period restrictions or limitations. This depends on your lender and payment period you have agreed with them for.
Here Are Some Tips to Help You Maximize Your Home Equity
A HELOC, has an adjustable rate of interest that is attached to paying it off, which means that payments can fluctuate up and down based on the federal rate. A home loan would be better if adjustable rates don’t sit well with you.
Before going into this you need to know your loan-to-value, ratio. The LTV ratio is how much you owe versus how much your home is worth. People have got into trouble because their homes lost value. You never want to be stuck owing more than what your house is worth.
Figure out why you need the loan and is it going to be for long. You’ll need to know this to help you decide which kind of loan you need. With Home equity loans you know they are better for single lump sum expenses while home equity lines of credit, work best for long term unkown expenses, like university tuition.