Interest Rates for Home Equity Lines of Credit


Just what is a home equity loan and what are the home equity line of credit interest rates? They are related but they are actually two different items.A home equity loan is a line of credit that a home owner can take out. The house itself is used as the collateral for this type of loan. The money that is borrowed is based on the portion of the first mortgage that is already paid off. It now acts as an asset which can be used for the benefit of the home owner. For instance, if the home is worth $150,000 and you only owe $50,000 on the first mortgage the equity that has built up is $100,000. This amount can be borrowed using a home equity line of credit.This money is available for the home owner to use for whatever may be a pressing need at the time. Perhaps it is a medical emergency or a child wants to attend college. It can be used for improvements on the house or even for a much needed vacation. Some use it to consolidate several other loans into one payment. It can be used for anything at all.Interest rates may be fixed or variable. Basically a fixed rate does not change and a variable rate goes up and down with the market values. Variable rates usually start out lower which makes them very attractive. But then they may increase and this will cost the borrower more in the long run.A fixed interest rate will stay the same throughout the duration of the loan. This means that your payment stays the same and you always know what to expect. You always know when your payment is due and how much it will be. A variable rate loan can change the amount of the payment from month to month.Even though a home equity line of credit interest rate may be higher than the rates on the original mortgage it is a wise choice. It is usually much lower than rates on other types of loans such as credit cards. With a home equity loan you can choose how much you want to borrow. You do not have to borrow the entire amount of equity that you have in your house, you may borrow only what you need. This can be a wise financial move if it is handled responsibly.