Borrowers in all 50 states are searching for variable HELOC lines of credit and fixed rate second mortgages for a wide variety of reasons. An increasing number of Americans are tapping into the equity of their homes through second mortgages, as home equity financing continues to adapt to the rising demands for borrowing, spending, and construction. The enhanced home equity financing option has emerged as a robust financial tool driving economic activity.
Let’s Compare the Variable Rate Home Equity Credit Line to the Fixed Rate Second Mortgage
Here are the key factors contributing to the growing popularity of equity loan programs. Home equity lines of credit (HELOCs) are flexible revolving accounts categorized as second mortgages secured by real estate. These credit lines have become readily available online, offering homeowners the convenience of accessing funds as needed. HELOCs provide versatility, allowing borrowers to borrow and re-borrow without restarting the loan process, a feature distinct from traditional home equity loans. A significant advantage of HELOCs is that interest is incurred only on the accessed funds.
In recent years, second mortgage rates reached historic lows. However, over the past eighteen months, the Federal Reserve has raised WSJ prime rates by nearly 3 percentage points, impacting variable HELOC interest rates the most. Despite this, home equity lines of credit remained competitively priced compared to traditional fixed-rate home equity loans during this period of record-low rates. Homeowners continue to opt for HELOCs for purposes such as bill consolidation, home improvements, and acquiring a second home. The affordability feature, characterized by low minimum payments, is a key attraction of equity credit lines.
Conversely, fixed-rate home equity loans are favored by many homeowners for their structured amortization. With fixed-rate second mortgages, each monthly payment contributes to both interest and principal reduction. Notably, in 2024, fixed-rate home equity loan rates may actually be lower than those of equity lines of credit. The predictability of fixed-rate loans provides consumers with a sense of security, as they can rest assured that their payments will remain stable. This trend reflects an increasing preference for converting a HELOC in a fixed-rate loan due to the peace of mind they offer
Article was written By Barry Donavan. —Copyright BD Nationwide