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When you already have a low rate on your existing mortgage, home equity loans can provide an excellent source of funds to pay off high interest debts, for remodeling projects, or cash out to use for any other reason. Additional benefits include low fixed rates and tax deductible interest.
When compared to other types of financing, home equity loans offer a practical solution for fixed rate, fully prorated payments with a choice of terms from 5 to 20 years. But if you are going to pay off the balance within a couple of years, then a line of credit may be a better choice, since variable rates and costs can be lower and usually have short term stability.
Debt consolidation is a common use, paying off balances on credit cards and other debts that charge daily compound interest.
It is estimated that you could save three times more on fixed rate, simple interest home equity loan, compared to high variable rate debts with compound interest.
In addition to other benefits, the interest portion of your payments can be tax deductible. The savings can be substantial, especially when you consider that money paid on any non-deductible interest is money lost. Your available deduction should be for the full property value. Check with your tax advisor for details.
Financing is available to you if you have equity or not. You can get up to 100% of value, and even if you need to exceed the current property value, second mortgages are available up to 125%. As a general rule of thumb, the more equity you have, the lower the interest rate will be. Your loan to value along with your credit scores can be the primary factors for determining the mortgage rates that lenders will offer.
To get an accurate comparison, it is recommended that you get quotes on the same day, because rates can change on a daily basis.
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