Home Equity Loans Rates

There are two financial products that may be of interest to persons who have built up equity value in their home property. These loan products are home equity loans and lines of credit. They are similar, but different. Both have home equity interest rates, which currently are very low. Equity is a financial term that means the value of the home that remains after deducting any amounts that are owed on existing mortgages.

The home equity interest rate for those persons having excellent credit histories are around 4.5%. With a good credit record, rates range between 4.5% and 8.5%. Differences in fees and other charges like possible penalties may make a higher interest rate loan better than a lower interest loan. That is why the borrower must look very carefully at all the small print items in a loan agreement.

The equity home loan rate is affected by changes in the federal prime rate. Today, rates are low but they could rise at any time, for any reason. As a bad economy improves, low federal prime rates start to go up so that the economy’s growth does not increase at an unmanageable rate. Since rates are almost at record lows now, they probably will only trend upward in the future. They are slightly higher now (May 2010) than a year ago, but are still hovering around the 4.5% to 5% rates for excellent credit record holders. Adjustable rate mortgages (ARMs) for short terms (1 to 5 years) can have even lower interest rates.

Equity line of credit rates are the same as home equity interest rates. An equity line of credit is a credit amount a lender sets up for a homeowner who has accrued value in the home above their mortgage amount. It is like cash sitting in a bank, only it is resting in the home. It also depends upon the current real estate market. Home equity line of credit rates are low and a good way to find low interest money for making home improvements or to consolidate bills.

Many homeowners today are discovering that their equity has been eaten up by dropping real estate prices. If the going price for their home in today’s market is less than what they owe on their mortgages, they are “upside” down on that mortgage and owe more than the value of their home. In that case they have no equity against which to borrow. On the other hand, if home values begin to rise, the homeowner will have additional equity against which to borrow.

There are many good reasons to borrow against the home’s value. Care should be taken to project future income and expenses to be sure that payments will be made on time. If the borrower cannot make payments, they will be subject to severe penalties and possibly even losing the home to foreclosure on the loans. Equity loans are only paid off at foreclosure after a first mortgage is repaid. Never borrow recklessly; always be prudent.