Think Twice Before Going For Home Equity Loan
Before going for home equity loan, it is quite important that you know well in advance which kind of loan package suits your financial condition. A home equity loan is identical to other loans in the sense that you get the loan amount as soon as you get an approval from the lender. You need to be extra careful when applying for these loans because if you are not able to repay the loan amount on time, you can lose your home which you have put up as collateral. Your interest rates and monthly installments will remain fixed throughout the duration of the loan.
Current interest rate
It's the best time to apply for a home equity loan as interest rates at this moment of time are not that high. Instead of opting for adjustable rate, it is advisable that you go for a fixed rate. The main advantage of fixed rate is that market condition is not going to have an impact on your monthly installment. Adjustable rate can turn out to be quite useful if your monthly source of income is going to increase in the near future. For people with limited monthly source of income, fixed interest rate is the best option.
Debt and home equity loan rate
Your home equity loan rate depends quite a bit on your previous credit history. If you have no previous debt to pay off, there is a strong possibility that you will get the loan at low interest rates. Further, you are not going to face a rejection from the lender. To pay your previous debt, you can go for a debt consolidation loan. The best part about debt consolidation loan is that it reduces your monthly installment and gives you flexibility in terms of repayment schedule. To get home equity loan at low interest rates, shop around in the market and take quotes from five or six lenders. When you do this, you will get an idea of current market condition and also what kind of loan package you are going to get with your financial condition and credit rating. To improve your credit rating, pay all your monthly installments on time.
Pros and cons of home equity loans
Pros
- Easy approval for a loan application. Funds will be in your bank account straightaway.
- Not much paperwork is involved. You just need to submit your passport, driving license and employment details.
- People with bad credit can also avail this loan. With home equity loans, you can easily improve your credit score.
- With home equity loan, you can opt for both fixed interest rates and adjustable interest rates.
Cons
- Interest rates are normally quite high.
- You are not going to get any grace period from the lender.
- You need to put something as collateral. This can be a risky affair especially if you are not able to repay the loan amount on time.
- Finding lenders for home equity loan is not easy as not many lenders deals with these loans.
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