Buying A Home – Home Equity Loan or Mortgage?
Home shoppers can easily get confused when they have to choose between home equality loans and mortgages for buying a home. While both options can be used to purchase the house, looking at the latest trends can help consumers to choose the better direction.
Home equity loans are often confusing for first time users. Both normal home equity loans and home equity lines of credit are used to avoid private mortgage insurance at the time of purchase, but a home equity line of credit can also be utilized later for liquidity.
Home Equity Loan – Latest Happenings
This year, renowned banks and credit unions are developing interest in lines of credit and equity loans as home prices rise in different states and homeowners look to add some amount of equity. Credit reporting agency Experian reports that equity loans increased by 30% in the second quarter compared to the first quarter.
However, consumers considering home equity should note that lending standards are now tighter than before. According to Bankrate, the home equity line average rate is 4.99% while the home equity loans average rate is 6.99%. Senior analyst at the source said that lenders aren’t acting as they did in the go-to lending years, and it’s going to be tough borrowing greater than 80% of the home’s value.
Furthermore, homeowners are going to need a good credit score. They will also need to search more to find a home equity loan that’s less than $25,000. Some lenders aren’t even offering smaller amounts at the moment.
Home Mortgage – Latest Happenings
The Mortgage Bankers Associated reported last week that mortgage applications increased by 1.3%. The real estate recovery has also been assisted by new federal policy, namely mortgage-backed bond purchases of $85 billion that aim to lower borrowing rates.
When considering a mortgage, comparison shopping shouldn’t only be based on the best advertised rate. Home Finance of America and other institutions with good BBB ratings provide competitive quotes, upfront details on fees involved and try to make the closing as simple as possible for the consumer. It’s no use opting for a low rate from an institution that that deceives home shoppers with hidden fees and inaccurate pay point information.
However, there may be a small window of opportunity as the Federal Reserve is going to meet this month to discuss their monetary policy. It’s rumored they plan to bring down quantitative easing; if this happens, the effects are also going to be felt on the mortgage market. As a result, the rates may not be less than what they are at the moment.
Despite the fear or rising rates, states such as Florida have witnessed some eager mortgage borrowers in 2013. However, as the trend shows, mortgage rates can fluctuate at any time, so home buyers will need to act fast.
Final thoughts
Based on the trends of home equity loan and mortgage rates discussed above, it looks like home shoppers may find it difficult to secure home equities on smaller amounts, but searching around may lead to some hope. And in the case of mortgages, they will have to act as mortgage rates may rise over the current offers.
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