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Are Home Equity Loans Cheap Loans?

[Mar 5, 2010.]

 

If you are looking for a cheap loan, and you own your home, consider a home equity loan. Yes, home equity loans are cheap loans! Home equity loans are normally based on Prime Rate which is currently 3.25%. The home loan lender will add a margin for profit, bringing the interest rate to about 4% on average.

Following are different types of loans that are likely more expensive than a home equity loan. If you have debts in any of these categories, consider a home equity loan for debt consolidation. Take a look at these options, and compare them by interest rate.

Personal Loans - (Avg. 12%) A personal loan is not a bad choice if you don't have equity in your home. They likely have a better interest rate than your credit cards. But, if you do have equity in your home, the personal loan will probably have a higher interest rate because it is unsecured. Home equity loans are usually cheaper because the lender has the security of your house as collateral.

Credit Cards - (10% and up) If you need a new roof or are interested in any kind of home improvement, consider a home equity loan before using your credit card. Many credit cards charge very high interest rates. Few people are disciplined enough to pay off large purchases, such as a roof, in a set term. If you think you might end up making just the minimum payment to your credit card, that roof could end up costing double what the contractor charged you to do the work.

Pay Day Loans - (911% for one week) Interest rates on a pay day loan are something like going to a pawn shop for a loan. These are definitely NOT cheap loans. You would never consider a pay day loan for a large purchase or a home repair. This type of loan has a purpose, but they should only be used in an emergency.

Auto Loan - (6% and up) Normally you would not want to encumber your home for a car. Some people like having only one payment a month. Using a home equity loan to consolidate debt, including your auto loan, is a standard practice. Interest rates on home equity loans are very low, often around 4%. If the interest rate on your auto loan is much higher, a home equity loan could be a cheaper option.

Compared to personal loans, credit cards, pay day loans, and auto loans, home equity loans are very cheap loans. Home equity loans are normally very quick loans. Often you can get a decision right away and access to your equity within a few weeks. Contact a home loan lender to see if you qualify for this type of financing.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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