What are the Different Types of Home Equity Loans?
The world of equity lending can seem confusing at first. What’s the difference between fixed and variable rates? What does LTV mean? How is a home equity line of credit different from a home equity loan? But once you understand the terminology and basics, it becomes easy to see how a home equity loan can help you reach your goals. Learn more about the different types of home equity loans below.
What’s the difference between “fixed rate” and “variable rate”?
With fixed rate home equity loans, every month the percent of interest charged on the loan is the same. A fixed rate loan means you can budget your monthly payment exactly and not have the amount owed change that month and take you by surprise.
Variable rate loans have interest rates that fluctuate with the market, meaning that a year from now your rate could be higher than the day you signed up for the loan. This variable rate is based upon a publically available index (like the prime rate or U.S. Treasury bill rate) and will fluctuate with this index.
What does Loan to Value (LTV) mean?
Loan to Value is a financial term for a lending risk assessment. Any lender will conduct an assessment of the risk associated with loaning you money for a mortgage or home equity loan. If you wanted to purchase a $100,000 home and needed to borrow $90,000 to do so, your loan to value would be 90%.