Best Mortgage

There are 2 ways to pull money out of your home without selling it: home equity loans, home equity lines of credit or HELOCs.

A home equity loan means that you get a lump-sum check for “N” amount of money and it comes with a fixed repayment program that spells out of the interest rate, the size of the monthly payments and how long will you have to make them. Like in any fixed-rate mortgage, neither the interest rate, nor the monthly payments will change during the life of the loan, plus the interest is normally tax deductible.
A HELOC is more flexible as the interest rate here is adjustable and can change a few times during the life of the loan. You take out money as you need it and pay it back as you can. You only pay the interest of the amount that you owe. Basically, you may take money out and pay it back over and over again. If you need a large sum of money today, for example, to remodel your house or to build a garage, then this loan is what you need.
Due to the fact the interest rates go up and down all the time, it also makes sense to get a fixed-rate loan. As the survey shows, HELOC charges over 8% now against 5.1% two years ago and the rates on traditional home equity loans haven’t risen higher than 1 percentage point during the last 2 years. However, HELOC is still a nice option for those homeowners who don’t need money immediately but wants the flexibility to borrow by just writing a check or using a simple debit card linked to their credit line. Any HELOC also allows you to decide how much of the loan you can pay off each month – you pay as much or as little of the principal as you wish. You usually have to pay an annual fee of $50 to $75 and your line of credit is usually closed after 10 years. 
Now let’s go through the interest rates on home equity lines of credit and compare. The fact is that the rates doubled over the past two years. First it looked like people couldn’t resist 4%, then it turned into the “I can’t afford 8%”. Let’s say you owed $20,000 on a line of credit and could afford $300 a month to pay it back. In January 2004, when the average rate was just 4.39%, your loan would be paid off in just over six years and cost you $2,954 in interest. That same loan at today’s rate of 8.23% would take just under seven years to payoff and the interest would run $6,829. We literally borrowed hundreds of billions of dollars against our home equity lines of credit when rates were around 4% in 2002 and 2003. But rates began rising in June 2004 and HELOC debt peaked in November 2005 when rates were still under 7%. Home equity rates have been going up because of the Federal Reserve Bank has been fighting inflation. The idea is that higher rates cause people to borrow less and spend less, making it more difficult for manufacturers and service providers to raise prices. As a result, the rate banks charge their best customers for loans, the so-called “prime rate” has gone from 4% in June 2004 to 8.25% today. HELOCs have followed right along because they are closely tied to the prime rate.
The rates for Home Equity loans on July 31, 2006:
HELOC 
$30K HELOC – 7.38%
$75K HELOC – 7.44%
$75K High LTV HELOC – 7.44%
Home Equity Loan
$30K Home equity loan – 8.38%
$75K Home equity loan – 8.07%
$75K High LTV home equity loan – 8.07%

This entry was posted on Monday, July 31st, 2006 at 12:26 pm and is filed under Main. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.