Saturday, March 20, 2010

Fixed Home Equity Loan

Feeling safe and secure is all out important in these times of recession. That is why a lot of people prefer a fixed home equity loan. As the name suggests a fixed home equity loan is based on a fixed interest rate, which means that you wont get a nasty surprise, if the interest rate suddenly jumps unexpectedly.

Why should you get a fixed home equity loan

Well, there are several good reasons.
  • Perhaps over time you have accumulated a few smaller debts from purchases of a car, a PC, a vacation, etc. and now you are paying a relatively high interest rate on these different small loans. So if there is room for it you should consider refinancing and get a fixed home equity loan with one flat interest rate. This is a particularly attractive option if you have had your home for a few years and build up some equity.
  • You need cash for repairing or remodeling your home or a new car. Again there may be room for refinancing thereby liberating some funds.
  • Security of a fixed home equity loan. You always know how much you have to pay because the interest rate never changes.
  • To cover smaller purchases you may be able to obtain a home equity line of credit (also known as HELOC), which typically is a lot cheaper than the interest rate most people pay on their credit cards.

Some fixed home equity loan advice

Most credit companies will allow you to borrow up to 80% of your homes equity, but there are some who will let you borrow more - even more then 100%. This can be risky because if you have to stretch to make your payments. What happens if you lose your job? Good advise is to not go above the 80%.

You also do some research when you are looking for a new fixed home equity loan. Even though the interest rate is determined by the Federal Reserve, then this is still more of a guideline, since the different lenders can decide for them selves how much they want to charge. A good practice is therefor to obtain quotes from several lenders and "pit" them against each other to achieve as low an interest rate as possible. Remember, we are talking about a fixed annual rate going for the next 20 or 30 years.