Home Equity Loan, Part 2
[Continued from: Home Equity Loans]
When you take out a home equity loan, the rate is usually higher than a regular (also called a first) mortgage.
However, the rate is generally much lower than the APR for credit cards, and it is repaid over fifteen years instead of four, meaning your payments will be lower than your minimum credit card payments.
For example, $10,000 in credit card debt at 15% will have a monthly payment of $278. The same amount owed at 15% on a home-equity loan over 15 years gives you a monthly payment of only $140.
The problem is that many people get a home equity loan to pay off their credit card debts, but don't change their spending habits and end up running up their credit cards again, compounding the problem.
Lenders call this "reloading" and if you lose a job, have a major illness, or the economy slows, you could lose your home.
Finding a Home Equity Loan
If you decide to apply for a home equity loan, you shouldn't necessarily automatically go with the same bank that holds your first mortgage. Instead, shop around to find the best rates and loan terms. Most home equity loans come with variable interest rates, although some come with low introductory rates, and a few have fixed interest rates.You may also find loans with large one-time upfront fees, closing costs, or other annual fees.
Finally, there are loans with large balloon payments at the end, and others with no balloons but with higher monthly payments.
Finding the right loan for you is a challenge; it requires checking different lenders and comparing options to select the home equity loan that best meets your needs!