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California_Home_Equity_Loan_Rates

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					California Home Equity Loan Rates

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336

Summary:
Since home equity loans are secured by equity in real estate they are
considered a safer investment by financial institutions than unsecured
consumer debt. As a result, the rate of interest reflects the value of
this collateral on the debt. While the interest rate of a home equity
loan is higher than a first mortgage it is considerably less than general
consumer debt.


Keywords:
California Home Equity Loans, California Home Equity Loan Rates,
California Home Equity Mortgage Loans, California Home Equity Loan
Refinancing


Article Body:
Since home equity loans are secured by equity in real estate they are
considered a safer investment by financial institutions than unsecured
consumer debt. As a result, the rate of interest reflects the value of
this collateral on the debt. While the interest rate of a home equity
loan is higher than a first mortgage it is considerably less than general
consumer debt.

Like most other financial instruments, the rate varies based on supply
and demand factors and the overall availability of credit in the market.
Common standard interest rate levels used to compare debt service are the
government’s LIBOR measure and the Prime Rate, which banks offer their
best customers. Since home equity loans are consumer level loans, their
rates are much higher than these levels, however they do tend to be in
line with mortgage interest rates.

Based on the type of financial institution and the borrower’s credit
rating, interest rates for these loans can vary by as much as 3-4%.
Another factor that determines the interest rate of such loans is the
loan to equity ratio. When 100% of the equity is used as collateral it
is considered more risky than when a smaller portion is used as
collateral. The reason for this is that banks consider their risks,
should foreclosure be necessary: if the loan is 100% of value they have
to bear the burden of disposing of the asset.

State legislators and regulators are looking at methods to ensure
appropriate disclosure of fees charged along with these financial
instruments. Depending on the debt to equity ratio, the origination fees
of these loans can run in thousands of dollars. As a result, the state
has required lenders to include such origination fees in standard
disclosure documents and to calculate an effective rate of interest that
includes these costs. This is in an effort to make interest rates that
are published easier for the consumer to compare. Professionals in the
business possess good insights and advice for loan consumers about the
best deal available.

				
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