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Home Equity Loan Rates

If you need cash for anything from a new car to medical bills to a home remodeling project, it may be easier than you think.  Your home can be a source of a home equity loan that can get you the money you need right away.  With a little information, you will know what you need to make sure that you get the best home equity loan rates and terms available.

It is important to start out knowing the difference between a fixed rate mortgage and an adjustable rate mortgage, so that you know which one to apply for when comparing home equity loan rates.

There are some basic characteristics that define a fixed rate mortgage.  In general, it is easier to understand in comparison to the adjustable rate mortgages.  It offers more security for buyers, and so is often used by people buying their first home.  It is a great fit for people who like to know what their monthly budget is going to look like and plan to keep their house for a longer period of time.  They generally have higher home equity loan rates of interest than adjustable rate mortgages as the perceived risk by lenders is higher, and they usually have higher monthly payments.  They tend to have less flexibility than adjustable rate mortgages.

Adjustable rate mortgages, on the other hand, are the opposite.  The rate varies depending on one or more indexes.  These may be treasury notes and bills, the Federal Housing Finance Boards National Average mortgage rate, average interest rate paid on jumbo certificates for deposit, and cost of funds for the specific lender.  The rates go up and down, so the lower the rate is that month the lower the payment.  This may mean that you qualify easier for the loan or that you can get a larger mortgage.  It is a good option for people who only plan on staying in the house for a couple of years.

There are some ways to help you get the best possible home equity loan rates and therefore the cheapest mortgage or home equity loan.  This includes: paying every bill as soon as you get it so that lenders know that you will make your payments on time month after month, making you a lower risk; making a larger down payment so that lenders perceive you as less of a risk of defaulting (plus then you will need to borrow less); pay off as much debt as you can so that lenders can see that you can afford all of your monthly payments; buy a house you can afford, which generally means not more than 30% of your income going to the payment; and shopping around to get quotes form multiple lenders.  In basic terms, the less of a risk that lenders perceive you to be, the lower the rate is that you will be able to qualify for.  In some cases, you may find it prudent to wait a year or two to get other debts cleared so that you will qualify for a better rate.  You can also look into other ways to improve your credit rating with smaller loans before applying for a large one.
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