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What are fixed rate home equity loans and home equity lines of credit (HELOCs)?

A home equity loan is a loan that you take out against the value of your home.

A home equity loan can be either a fixed rate equity loan, or a variable rate (sometimes fixed rate) equity line of credit, or HELOC. In either case, the term of the home equity loan is fixed, usually at 10 or 20 years.

When should I get a fixed rate home equity loan or HELOC?

Homeowners typically take out fixed rate home equity loans, or HELOCs in one of several cases:

  1. A homeowner could take out a fixed rate home equity loan or HELOC to consolidate debt, usually higher rate debt, such credit cards with high interest rates.
  2. A homeowner could also take out a fixed rate home equity loan or HELOC to use as a down payment on either a second home or an investment property.
  3. A third reason that a homeowner would take out a fixed rate home equity loan or HELOC would be to use a second mortgage, along with a first on a home purchase or refinance.

Make sure a home equity loan is the right option for you. The University of Illinois has listed out the advantages and disadvantages of home equity loans. Compare them here.

What are the benefits of having a fixed rate home equity loan or HELOC?

One benefit of taking out either a fixed rate home equity loan or HELOC on your property is that the interest on debt you pay off, such as credit cards is now usually tax deductible. The interest rate on the home equity loan or HELOC is usually lower than the interest rate on credit card debt.

Another benefit of taking out a fixed rate home equity loan or HELOC is that it is sometimes an interest only loan, meaning you are only paying off the interest, giving you a lower payment each month. Check the rates on both fixed rate home equity loans and lines of credit when determining what is best for your situation.

Read the fine print when looking for a fixed rate home equity loan or HELOC.

Always understand the terms of either a fixed rate home equity loan or variable rate HELOC when shopping for either. Be aware of the maximum interest rate you can pay, and know about prepayment penalties. Lenders of these types of loans usually get a fee either at closing, or when the loan gets paid off early, so make sure you know the terms.

Resources when looking for a fixed rate home equity loan or HELOC

Loan.com wants to make your search for a fixed rate home equity loan or variable rate HELOC as straightforward as possible for you by arming you with the tools that will help you to make informed choices when looking for a fixed rate home equity loan or HELOC. These tools include:

  1. The Borrower's Bill of Rights - Our Borrowers Bill of Rights helps you avoid unethical lenders and get the most from ethical lenders.
  2. Truth about Loans - Our in-depth library of helpful articles tells you what to expect at every step of mortgage process.

Do your homework and think twice before signing. Refer to the FDIC (Federal Deposit Insurance Corporation) website for more information on home equity loans, and also check out RealEstateABC's interest rate outlook report.

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