What Are The Advantages To Fixed Rate Home Equity Loans?

What Are The Advantages To Fixed Rate Home Equity Loans?

More and more homeowners are pursuing home equity loans. These loans use the character as collateral. It is basically a second mortgage on the same character. Equity is an asset. It builds up as the initial loan is paid off. Essentially it is the paid off portion of the house. A home equity loan is a line of credit which is extended against what is already paid off.

This borrowed money can be used for virtually any purpose. Many choose to take out a second mortgage to perform much needed home improvements or repairs. However, there are no stipulations stating what the monies must be used for. They can be used to consolidate other loans or pay tuition. It can already be used for a much needed vacation.

There are two types of rates for home equity loans, fixed or variable. The adjustable rate loan allows the borrower to pay only interest for several years. As repayment continues the principal begins to decrease. Usually the initial rate for the adjustable rate loan is lower than the fixed rate. However, they can fluctuate depending on the Federal save. already though they may start out lower they may end up costing a lot more as the interest rates go up. This also method that at the end when you are ready to pay the loan off there may be a large balloon payment that is nevertheless due. This is why many are opting to transform their adjustable rate loan to a fixed rate line of credit.

A fixed rate home equity loan is a line of credit in which a borrower takes out a predetermined amount of money. The interest rate does not change over time. This is because they are fixed and do not depend on the index rate. This is advantageous as when the index rate goes up the interest rate on the loan stays the same. This can save the borrower a huge amount of money in interests in such a troubled economy. It allows for a stable loan in which the payments stay the same throughout the duration of the loan.

With a locked in interest rate the fixed rate loan is an excellent choice for those wishing to consolidate several loans. It is also a good solution to paying off credit cards bills. This locks in one interest rate and potentially saves the borrower lots of money in the long run.

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