Interest Rate Information



The Truth About Interest Rates

One of the most important costs of your home equity loan is your interest rate. This one factor determines how much your monthly payments will be, and how much you will be paying over time. When shopping for your loan, make sure you understand what interest rates are, and how they work.

Annual Percentage Rate (APR)
APR is not the interest rate on a loan. It is a calculated figure that includes the interest rate along with other associated fees. This figure is affected greatly by the interest rate however, and it is the best way to determine which lender has the better deal.

If you are comparing APRs between multiple lenders, be sure that all the terms are the same. Even though they might offer the same APR, one loan term could be 5 years -while the other was calculated for 10 years. The longer the term; the more money you will be paying in the long run.

Variable Rates
Variable interest rates are rates that do not stay the same throughout the term of the loan. You should be careful when dealing with this type of interest rate. If it changes your monthly payments and APR can go up.

Variable Rates are generally lower than the prime rate at first. Borrowers are attracted to this rate but it is scheduled change after a certain amount of time. The term before a variable rate can change, is dependent on lender (generally every 6 months to 1 year).

There are usually restrictions as to how much the rate can increase each time. Make sure you know exactly what can affect your variable rate and how. You should also calculate the rate changes to see how it will affect your monthly payments, and to see if you will be able to afford it.

Introductory Rates
An introductory rate is usually associated with home equity credit lines. These rates are temporary interest rates offered as a kind of signing bonus to the borrower. The introductory term generally lasts between 6 months to 1 year and can increase dramatically at that time.

Lenders will offer introductory rates several points lower than the prime rate in order to get the deal. To avoid not being able to afford you loan payments you should know exactly what interest rate will follow the introductory rate.

You should find out if it is a fixed or variable rate, and how much it will increase your monthly payments. There are some provisions in the loan contract that might prematurely end your introductory rate period if you miss or make a late payment.

Fixed Rates
A fixed interest rate is the safest way to go when taking out your home equity loan. This rate does not change in most cases. The important thing, is to find a fixed rate that is suitable for you. Even with fixed rates, a lender might have a provisions in the loan contract to increase the rate if you violate certain policies. Be sure to look for these terms and negotiate to have them removed.

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