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These days the competition coming from financial institutions for refinancing your home is intense. The reason these loans are so attractive to lenders is simple. Compared to a credit card account, lenders are prepared to offer to you some very attractive home equity home rates because the loan is secured. "Secured" means that the loan has collateral and that is your home. When you take out your first mortgage or you use refinance it, the outstanding equity of your home secures the loan. In plain terms, that means that if you don't pay the loan back, they can take your home.
This sounds pretty harsh but your first home loan was secured this way as well. The reason that credit card accounts have such high interest rates is because those loans are not secured. So lenders can offer you very attractive home equity loan rates simply because the loans do not represent as much risk to the lender. They have statistics on their side. Studies have shown that a huge majority of people who get mortgages or refinance loans pay them back faithfully because the homes they are raising their families in are at risk if they don't.
The availability of great home equity loan rates is not new to modern lending markets. What has changed is how people use refinance credit when they have some equity in their homes that they can use. There was a time when people only took out home equity loans for big life purchases like to go on a big vacation to Europe or to finance a child's college education. While many still do use these loans for those purposes, the most common use of home mortgage equity loans today is to pay off high interest rate credit card accounts. It makes sense if you have a large balance on an unsecured account to move that debt to a home equity vehicle. The rate will be much lower and fixed so you won't see your interest rate bounce up and down like credit card companies love to do.
It is worthwhile to note that you can only get good home equity loan rates on the available value of the home that you actually own. That means that even if your home is worth $100,000, that does not mean you can take out a $100,000 loan. The equity you can borrow against is only the difference between what you owe and what the current value of the home is. So if you have paid back $5000 of your loan and your property is appreciated $20,000, then you can get a mortgage refinance loan for $25,000.
Be aware also that you should be very careful about who you do business with as there are many financial institutions who would offer you great home equity loan rates. But be sure you do business with reputable lenders who are not out to steal away that valuable asset you have in your home equity. Don't be too vulnerable to emails or junk mail offers to give you a great deal on a home equity loan if you have not heard of the financial institution who is advertising to you.
As a rule, if you work with financial institutions you already know well and that you trust, you can count on them to do business with you in an honest way and still give you home equity home rates that will help you out with whatever project you need to use the money for. It still pays to have all of the refinance documents reviewed by your own financial and legal advisers to make sure you are entering into a fair agreement. But once you do that, you can get a lot of value from your home equity and still pay it back in time for retirement.
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