Since the housing market crash of 2008, homeowners have been left in dire situations. However, on the flip side of this equation, many homeowners have been taking advantage of the opportunities that the current market is presenting. For example, interest rates are low and home prices are dropping, creating plenty of opportunities for investors and home buyers. In fact, for the last couple of years the housing market has been a buyer’s market. This trend will not continue forever and individuals who are looking to buy a home have a few options that they can take advantage of.
One of the reasons why the housing market has fallen deals with the fact that so many homeowners had a variable rate home equity loan. A variable rate home equity loan has a fixed rate in the beginning, but after a certain amount of years that is specified in the contract, the interest rate goes up. Once interest rates go up on a mortgage, it has the potential to leave the homeowner in a financial hardship. However, today’s housing market is presenting low fixed interest rates on home equity loans. A fixed rate home equity loan is a type of loan that has a fixed interest rate that is promised to never go up.
If interest rates were to go up, the home equity loan that has a fixed interest rate will remain at its current level. What makes these types of home equity loans appealing is the fact that they can also be found with a low rate as well. Fixed rate mortgage loans usually have a higher interest rate than a variable rate mortgage loan. The difference is the variable rate mortgage loan has the potential to be higher than the fixed rate mortgage loan in the future. Home equity loans work a little different than a typical mortgage loan.
When an individual purchases a new home, they are using a mortgage loan that uses the home to secure the loan. In other words, the home itself is the collateral which the bank uses to reduce risk. A home equity loan is a loan that is used to borrow on the equity of the home. For example, a homeowner who has made payments throughout the years will begin to build up equity in their home. Equity simply means the homeowner owes less on their home than what the home is appraised for.
The rates for home equity loans are lower than mortgage loans because the full value of the home isn’t being borrowed on. On the equity is being pulled out from the home. Individuals are advised to use a low fixed rate home equity loan if they plan on staying in their home for years to come. If the homeowner obtains a low fixed rate home equity loan and remains in the home for years, they will avoid the possibility of the interest rate going up in the future. In other words, the homeowner will effectively have avoided financial disaster in the future.
Home equity loans are also regarded as home equity lines of credit. They are used for a number of reasons, including consolidating debt, remodeling, and a down payment on another piece of property. Since interest rates are low, and home values continue to drop, it’s recommended to use a low fixed rate home equity loan before home values drop to the point that the homeowner doesn’t have any equity. The homeowner will then be able to use the money to eliminate high interest rate credit cards, or they can invest in other properties, effectively taking advantage of falling property values.