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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127237  
Subject: Re: Home Equity Loans Date: 10/7/2001 4:49 PM
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Hi Caat,

Are home equity loans more expensive (ie: you will get charged a higher interest rate) than other types of loans?

If you're asking about fixed, stand-alone, cash-out 2nd mortgages... yes, they are at higher rates than 1st mortgages (with 1st lien positions, thus less risk to the lender.)

If so, are there other options? Any suggestions would be greatly appreciated...because we're sure as heck not going to do a loan at 9% like some people are quoting.

Rates on 2nd mortgages will vary according to how high you go relative to your property value. Currently, rates on 2nd are at an incredible low... and remember that a 9% rate which has tax deductibility beats the devil out of a 9% (or higher) consumre credit rate with no deductibility.

There are also Home Equity Lines Of Credit (HELOCs) that allow you to pay interest only for the initial 6 months at Prime MINUS 1% (so, 4 1/2% right now,)... and then interest-only for up to 9 1/2 years at a variable rate of Prime PLUS 2 1/2% (thus, 8% right now.) At the end of the interest only period the remaining loan is ammortized for a 15-year payoff. These are a good deal if you intend to pay off the HELOC in a relatively shorter amount of time (a few years or so,) thus you can take advantage of the lower rates, and avoid the risks of rising variables (entirely the Fed Prime rates.)

Cheers,
Dave Donhoff
Foolish Mortgage Broker
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