Home Owner Loan Rate - Get to Know the Market First!

How is the interest rate set?

It often helps before going for a loan to conceive how a loan rate is set! Firstly, it is often surprising to most borrowers that interest rates don’t always follow the rate that the Government sets - commonly called it’s benchmark rate. A Home equity loan rate is determined by what is going on in the financial emporiums.

In fact you may have noticed that often rates rise when the Government Benchmark is being lowered. The reason for this is you need to consider that the Government sets rates for the very short term. These ’short term’ rates are used by the banks to lend to each other (note - the banks , not you and me!). On the other hand the ‘market’, comprising investors, bankers an! d economists may hold the view that the longer term view on interest rates is that they are going to go up. Perhaps there is a common consensus that inflation will be going up reflecting higher gas prices etc - then this ‘perceived rise in money cost’ must then be factored in. Just think, if you have taken out a 30 year home equity loan - your lender must factor in changes in the future otherwise they will lose money!

Of course rates can go the other way as well!

OK so why is this important to me as a er?

Here are the reasons. If you are looking to borrow funds against your house and you think that rates are going down because the Fed is lowering rates then look at other factors such as - how is the economy looking? - is it strong to the extent that there are inflationary problems if rates come down? If that is the case then any reduction in rates will be short term. The market will work out that a reduction now means that even though t! he Government may have to reduce rates now the market is facto! ring in higher rates a few months or years down the line. The lender therefore out of incertitude either holds the borrowers rate as it is or even puts them up. Think of it this way, look at how fast rates go up and how slow they come down!!!

So what should a borrower do?

Well if you’re after a home loan rate that is low - it’s about ‘timing’ and product selection. You have two choices. A home equity loan or a home equity line of credit. If you are uncertain as to where the market is going but suspect rates are going to be higher then you are better off with a home equity loan as you can get a fixed amount locked in. If however you are unsure and you want more affability the an righteousness line of credit is possibly the best option - but you must realize that a home line of credit will have a variable rate and will track the rates set by the market. It’s your call! Educate yourself through markets and then you will be able! to more easily determine for yourself what the best loan rate should be for you!

There are many benefits to taking out home equity loan. IXL Publishing.com is a resource site that you should look at and see how various forms of loans can help you. It is a source to help you understand the types of loans, what they are including bad credit solutions and combination Check it out you may save money!

Peter Burke is a regular contributor of articles with the aim of inner reality able to inform and help populate with specific problems!

Peter Burke MBA has been writing Journals and Articles for academic publications for over 7 years and is Managing Director of a Consulting Company in the United Kingdom.

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