home equity

Time to look at home equity loan rates?

Since the housing bubble burst, you might think home equity loans went the way of the dodo. Few lenders were willing to issue home equity loans while home values across the nation were plunging. But that is starting to change. So, now may be a good time to look at home equity loan rates.

Home equity loan rates have averaged around 7 percent lately, according to Bankrate's weekly survey. That may sound like a great rate, but a home equity line of credit, or HELOC, is likely to have an even lower rate. What is the difference between a home equity loan and a HELOC -- and which is right for you?

Home equity loans and HELOCS are sometimes called second mortgages, but they are not identical products.

A home equity loan, which can also be called a term loan, is similar to a fixed-rate mortgage in that the rate does not change over time. It's one lump-sum loan that you pay off monthly, with interest, over a predetermined period.

A HELOC, however, is more like a credit card. It allows you to borrow up to a certain fixed amount for the life of your loan. You can withdraw money whenever you need it and pay it back at your own speed -- as long as you do so in full by the end of your loan term. But be prepared, with a HELOC, your interest rate can change as long-term interest rates fluctuate. So, your monthly payment could increase or decrease depending on the direction of interest rates.

A HELOC might suit you better than a home equity loan if the following conditions apply:

  • You don't need all of the money at once.
  • You don't want to be married to a monthly payment.
  • You are ready to risk fluctuating interest rates.
  • You won't be tempted to make careless/unnecessary purchases.

If, on the other hand, you've determined that a home equity loan is right for you, check out current home equity loan rates with Bankrate's home equity loan rates finder.

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