Home equity loans can offer immediate relief for consumers seeking cash for debt consolidation, home improvement projects, or to pay for college. Depending on your circumstances, two products secured by home equity will fit the occasion, a fixed-rate loan or a home equity line of credit (HELOC). Finding the best rates for 2016 will require some research and fielding offers from competing lenders. Let's examine home equity loans, their practical uses, and how to land the best rates.
Choosing a Home Equity Loan
Home equity loans are financially beneficial in paying off debt, as opposed to credit cards or unsecured personal loans that both come with higher interest rates. Home equity fixed-rate loans typically come with repayment periods of five to 15 years. Depending on credit and other qualifying factors, lenders will lend up to 80 percent of the home value, minus the amount still owed on it and other personal debts. This week, banks were offering just over 5 percent on a $30,000 fixed-interest home equity loan. Another benefit of getting a home equity loan is that consumers who itemize may deduct interest payments on their federal taxes up to the first $100,000 on the loan.
With the right-sized loan, a consumer should end up borrowing enough money to consolidate their debt AND be able to pay off the second mortgage. Borrowing against home equity is not without risk, especially among consumers who routinely run up credit card debt or spend above their means. If you can't make payments on a home equity loan, the bank can seize your house.
Shopping for the Best Rates this Year
When shopping around for the best 2016 home equity loan rates, consumers should consider two key factors: interest rates and mortgage fees. Closing costs on a home equity loan can vary across the range of lenders. Consumers may be charged between 5 and 6 percent on the loan at closing time. Fees may include home appraisals, title search, attorney fees and documents.
Here are some key steps in securing a loan with an affordable rate:
1. Check your credit. Scores figure promently in the calculation of loan risk.
2. Use LendingTree's Loan Payment Calculator to determine the size of the monthly payment based on total amount, interest rate, and term.
3. Seek free competitive offers for home equity loans at LendingTree.
4. Examine alternatives.
If a home equity loan with a fixed rate seems inappropriate, consumers have other alternatives for consolidating debt or freeing up cash, including a home equity line of credit (HELOC) or a more costly unsecured personal loan. HELOCs are better suited for those who can pay off the loan in a shorter period of time. Because they come with adjustable interest rates, HELOCs are a little riskier for borrowers looking at a lengthy payback period. Unlike home equity loans which are paid out in a lump sum, HELOCs work like credit cards in that you borrow what you need over time, up to the credit limit.
With rates being so low, now is the time to get a home equity loan. Shop around by viewing all our offers here.