About Low Home Equity Loan Rates
A home equity loan is usually a variable line of credit that uses a home as its collateral. The lower the interest rate, the lower the expense to the borrower over the life of the loan.
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Significance
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The interest rate is the percentage rate charged to a borrower based on the size of the loan. To lower the overall cost of the loan, the borrower should try to get the lowest rate possible.
Function
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A home equity loan allows a borrower to use the equity in the home to make needed repairs or to use as a line of credit with tax-deductible interest. Although the interest is tax-deductible, the borrower is still better off with a lower interest rate.
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Considerations
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The biggest variables in determining the interest rate on a home equity loan are credit score and "loan to value." The more equity in the home and the higher the credit score, the lower the interest rate for the borrower.
Misconceptions
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Unless the interest rate on a home equity loan is fixed, it can adjust at pre-determined intervals based on market rates at the time of the adjustment. This can make the payment on this type of loan vary widely.
Benefits
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If the borrower is able to secure a low interest rate on a home equity loan or line of credit, these financial products can be a great tool for purchasing big-ticket items, such as a car, while writing off the interest on taxes.
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References
- Photo Credit Image by Flickr.com, courtesy of woodley wonderworks
