Home equity loans can be either fixed-rate loans, where the rate of interest remains locked in throughout the course of the loan, or they can be adjustable-rate loans, where the interest rate fluctuates up or down along with the economy.
When interest rates are low, you may prefer to choose a fixed-rate loan to lock-in those low interest rates. However if interest rates are high, then it might be a better overall cost strategy to choose an adjustable-rate loan.

Home Equity Loans Explained
A home equity loan is a secured loan. A method to release the embedded equity in the home you own. An alternative expression is that homeowners use the equity in their home as collateral. Such loans are often taken out by homeowners that wish to either; finance home renovations, pay for unexpected expenses, pay for higher education or even to refinance your credit cards or fund that ideal holiday.

Essentially this loan creates a charge, or additional charge, against the home until it is repaid. If the borrower already had an existing mortgage then the Home Equity loan will be a second mortgage ranking behind the first mortgage for security purposes, hence the need for the lender to ensure that the borrower has sufficient equity in the home to cover their loan advance

Obviously there are conditions that borrowers must meet before they become eligible for a home equity loan. These loans were historically only available for homeowners that had substantial equity in their home, as well as a good credit history, however many banks and loan companies have become more aggressive pursuing profits in recent years and some have been advancing home equity loans to borrowers with less equity and with less than perfect credit rating credentials.

Calculating the Equity in your Home
The usable equity a borrower has in their home is calculated by fist establishing the market value or security value of the home, usually by the lenders assessor. Then from that figure you deduct the outstanding balance (or the limit if they are redrawable facilities) of existing mortgages. This would equate to what funds you would have left over if you sold your home and repaid all loans against it.
Types of loans
Home equity loan rates and terms vary, essentially, loans on your home’s equity fall into one of two types: open ended loans and closed loans. A closed or fixed loan would be for a specific time frame with fixed monthly payments usually up to 15 years in term.

Open ended loans are those most often called a line of credit. With a highly flexible line of credit type loan, the borrower can draw, repay and then redraw, so they treat it like an overdraft and determine when they want to borrow and repay. Much the same as a credit card facility, in fact some of these facilities can be access with a credit card.

Line of Credit type loans usually require a more comfortable home equity for the lender and sound credit history, as they never know what their exposure on that loan will be from time to time except for its credit limit.

Is a consolidation Home Equity Loan Suitable?
Before you assess that question, you should think about what type of loan you is best suited to you and which loan's rates really are the best, as well as most suitable for you. Should you be seeking a bigger loan or a better interest or is a flexible facility going to suit you better. Let's calculate the outcomes and chew on that. Read more...