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There isn't a single or simple answer to this question. The right type of mortgage for you depends on many different
factors
- Your current financial picture?
- How you expect your finances to change?
- How long you intend to keep your house?
- How comfortable you are with your mortgage payment changing?
For example, a 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.
The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with
one of our mortgage professionals.
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 Interest
Rates - The periodic charge, expressed as a percentage, for use of credit.
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| Average
mortgage rates and points in the top 10 markets |
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| New York Metro |
5.24 |
0.11 |
5.78 |
0.16 |
4.47 |
0.08 |
| Los Angeles |
5.21 |
0.46 |
5.78 |
0.56 |
4.21 |
0.17 |
| Chicago |
5.27 |
0.09 |
5.87 |
0.10 |
4.45 |
0.00 |
| San Francisco |
5.22 |
0.27 |
5.78 |
0.41 |
4.25 |
0.00 |
| Philadelphia |
5.15 |
0.23 |
5.72 |
0.23 |
3.94 |
0.00 |
| Detroit |
5.14 |
0.25 |
5.75 |
0.25 |
4.13 |
0.25 |
| Boston |
5.25 |
0.00 |
5.87 |
0.00 |
4.00 |
0.00 |
| Houston |
5.07 |
0.67 |
5.70 |
0.67 |
3.75 |
0.75 |
| Dallas |
5.16 |
0.42 |
5.74 |
0.42 |
4.13 |
0.33 |
| DC Metro |
5.08 |
0.59 |
5.66 |
0.53 |
4.39 |
0.73 |
| Brm National Index |
5.18 |
0.31 |
5.76 |
0.33 |
4.18 |
0.25 |
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Average mortgage rates and
points as of survey date 12/10/2004.
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Sometimes our borrowers find that an home equity loan or a home equity line of credit (HELOC) is a better
choice for them when they are taking out a second mortgage. A home equity line of credit
offers you the convenience of a second mortgage with the flexibility of a
credit line. Many borrowers feel that this is more beneficial because
you have
the ability to pull out more money after the initial draw.
The initial
draw can be for any amount in the home equity line and in the
future you have
the ability to draw up to the credit limit of the
line.
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Home Equity Loans
What is Home Equity?
Home Equity is the portion of the home’s value that is actually owned by the borrower outright. Home Equity would be calculated as the difference between the fair market value of the home and remaining balances owed on the borrower’s loans.
Fixed-Rate Loan vs. Line of Credit
What types of home equity loans are there?
There are two types of home equity loans:
• Fixed-Rate (Term or Closed-End Loan)
• Line of Credit
Both are secured by your property like your original (or first) mortgage, and for this reason are referred to as second mortgages.
Home equity loans and lines of credit are usually for a shorter term than first mortgages. Mortgages typically run 30 years, while home equity loans generally have a life of 5 to 15 years.
A home equity loan, sometimes called a term loan, is a one-time payment with a fixed interest rate and the same payments each month. Once you have received the money from a home equity loan you cannot borrow further from the loan.
View current home equity loan rates
A home equity line of credit (HELOC) works more like a credit card. You are allowed to borrow up to a certain amount for the life of the loan -- a time limit set by the lender. During that time you can withdraw money as you need it. This allows for greater flexibility than a home equity loan.
A line of credit is like a credit card in that it is revolving debt. This means that as the principal of the line is paid down, your credit “revolves” and you can use it again. For instance if you had a $20,000 line of credit. You borrow $15,000, but then pay back $6,000 toward the principal. You now have $11,000 in available credit.
Credit lines have a variable interest rate that fluctuates over the life of the loan. Payments will vary depending on the interest rate and how much credit you have used. When the life span of a line of credit has expired everything must be paid off. A lender may or may not allow a renewal.
View current home equity line of credit rates
Access to lines of credit is provided by specially issued checks or a credit card. Lenders may require the borrower to take an initial advance when you set up the home equity loan, withdraw a minimum amount each time you dip into it and keep a minimum amount outstanding.
Financial institutions will negotiate a home equity loan much as they do a mortgage: The loan or line of credit will have to be paid off once the house is sold.
Which type of home equity loan should you choose?
This all depends on your situation. A TMG Finance Loan Counselor will be able to assist you in making the right decision based on your individual needs.
However, there are some scenarios where the choice is apparent. For instance, let’s say you need $15,000 to pay for your daughter's wedding next month and $5,000 to fix your roof next week. In this scenario you know exactly how much money you need and that you have a short window in which the payments will be due. A straight home equity loan (term loan) for $20,000 makes the most sense, so long as you’re not planning on borrowing again in the near future.
But if you need money over a longer, less defined period of time -- for example, at the beginning of each school year for the next four years to pay for your child’s schooling or for a remodeling project that will take three years to finish -- a line of credit would better fit your needs. A line of credit would give you the flexibility of borrowing only the amount needed, at only at the times when you need it.
Another instance would be if you were to borrow a relatively small amount and could pay back the principal quickly, a line of credit could cost you less than a home equity loan.
Consumers with high levels of credit card debt will often borrow from their home equity to receive a lump sum and pay off their Visa, MasterCard and department store charges all at once. They will then pay back the bank over time at a lower interest rate than their credit cards were charging them. This is the most popular form of debt consolidation that people utilize when taking out home equity loans. In this case, fixed-rate home equity loans are used more often than lines of credit.
Still not sure which home equity loan you should choose, fill out our form and a receive a free, no-obligation consultation.
Click below to schedule your Free Home Equity Consultation
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