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Home Equity Loan Rates - High And Dry

In a recent online survey, the national average rates for a 5/1 ARM were about 4.5%. At the same time, the national averages for a $75k home equity loan was about 6.7%. So whats up, why are home equity loan rates so much higher for so much less of an amount? If that question is a stumper, then try this one out - why are home equity loan rates higher than the rates attached to your first mortgage?

The confusing world of home equity loan rates

For the first question - the one asking why home equity loan rates fall as your financial responsibility increases - demands just a little more information. The rates between a $35k home equity loan and a $75k loan will be different, but what remains thee same is the percentage of your home equity that loan amount represents. The home equity loan rate you see will be based off the assumption of a certain percentage of your equity - taking out a $35k loan implies you have a certain percentage more in equity. If you are applying for a $75k loan with similar percentage assumptions, you have much more in equity and are therefore seen as a more secure bet.

For the second question - why are home equity loan rates greater than first mortgage rates - the answer lies in increased lending risk. A home equity loan is a second mortgage - meaning second in line behind the first. If you miss out on your monthly payments, or decide to skip out on your financial obligations altogether, the first lender has first dibs on the property itself, while the second lender is forced to stand back and wait for his turn at your home carcass. High risk means higher home equity loan rates - its there, its unbeatable, get used to it.

Where to find the best equity rates

Firstly, you can find lower rates attached to a home equity line of credit than you can through a traditional home equity loan. After that its all up to the lender. Countrywide home equity financing is always stead and always secure - but their rates are always somewhere near the middle and that means you will probably find a better deal through another equity lender. But will you qualify? Ahh, thats the great question of the hour - will you qualify?