Home equity loans at favourable rates

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Home equity loans at favourable rates

2nd December 2009

With interest rates at an all time low, now may be a good time to extend your mortgage, providing you have sufficient equity in your home.

The bank of England base lending rate has now dropped to 0.05%, and lenders are cutting their mortgage interest rates accordingly. This means that there are plenty of good deals around, but how good a deal you can get will depend on the equity that you have in your home. Lenders are increasingly looking at loan-to-values when deciding whether to grant mortgage loans, and they offer different deals according to the amount of equity in the home.

So how does this work?

The loan-to-value (LTV) relates to the amount of outstanding mortgage compared to the value of the property. For example, if you have a property worth 200,000 with a mortgage of 120,000, your loan-to-value is the proportion of outstanding loan against the value of the property. In this case, the LTV of 120.000 against 200,000 is 60%. If the property was to drop in value to 170,000, the LTV would be 70.59%. The lower your LTV, the better a deal you can secure with a lender.

With house prices decreasing you may find that the LTV in your home will increase, meaning that you could get a better deal now than you would in six months time. Banks and Building Societies now place so much emphasis on LTV's that some will not lend to you at all if your LTV is over 80%. Add to that the fact that interest rates are at an all time low, and now might be the best time to extend your mortgage. Don't worry if your LTV is already over 80%; there are still many companies who will offer you a home equity loan.

There is a wide choice of mortgage deals available, including fixed and variable rate mortgages. People with variable rate mortgages are currently benefitting from low interest rates, but it may be wise to take out a fixed mortgage deal whilst rates are low in order to shield yourself from any future rises. With interest rates so low, some experts predict that it is inevitable that they will eventually rise again. Your mortgage advisor or lender will be able to discuss the pros and cons of the various options with you.

Please bear in mind, however, that this type of loan is secured on your property, so if you get behind with payments, you could risk losing your home.

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