Your Questions About Home Loan Interest Rates

Steven asks…

student loan interests rates?

I have some outstanding stafford loans I am currently paying off. I was wondering if it pays to shop around for a better interest rate or is my interest rate pretty much set in stone. thanks

John answers:

Alas you ask a question I can actually help you with. It really depends on your current interest rate. The prime rate is really low right now but lenders are a bit nervous about handing out unsecured loans because they have enough bad debt with their secured loans (See Sub-Prime fiasco).

If you own a home you could get a home equity rate as low as 5.5% right now. Probably soon to be lower than that. Depending on your credit score your unsecured rate is probably 10-12%.

Do you know your current rate and balance?

I just went back in and looked and the rates for repayment are 7.22%. That’s actually a really good rate for an unsecured loan. So unless you have a house that you can borrow against I don’t think you’l find a better rate. As far as paying off your debt, pay your higher debt (Car loans, Credit Cards) off first before your student loans. Student loan interest may be tax deductible but I’m not positive.

And my last advice, any money you have left over start investing for retirement (ROTH IRA). You don’t need a lot of money to retire rich but you do need time for money to compound. It is crucial you start as early as possible.

Good luck!!! Love your questions!!!

Paul asks…

Home Equity Loan?

Im thinking of getting a home equity loan, and with the money pay some debt off plus make home repairs. Is it a better idea to pay off old debts in full upfront, or, pay them off gradually?( keeping the loan-money available for a longer time)

John answers:

Is it a Home Equity Loan (HEL), where you get all the money up front? Or Home Equity Line of Credit (HELOC) where you can take money out gradually?

If it’s a HEL, since you would presumably be paying interest on both the old debt and the new HEL, it will cost you less money to pay off the loans up front. Of course, this is only true if the interest rate on the old debt is higher than the interest rate on the HEL. If the interest rate on the HEL is higher, then you shouldn’t use money from the HEL to pay off the old debt.

If you are getting a HELOC, then it depends on the interest rates. Once again, if the interest rate on the HELOC is higher than the interest rate on the old debt, you shouldn’t be paying the old debt off with the HELOC anyway. If the interest rates on the old debt are the same or higher than the interest rate on the HELOC, then pay off the old debt up front. For your home repairs, only draw as much out of your HELOC as you need at a time to make the repairs. If you draw money and don’t use it, you will pay interest on it that you didn’t need to.

William asks…

What is the average interest rate for a poor credit home loan?

My sister has poor credit… because she lost her job and now she is working on it.

her trans-union is almost a 600 << ( via credit karma) and the one for auto is like 800 pulled by a dealership.
that's all the info she gave me.. she would like to know for a fixed interest rate.
also We know she need a down payment and proof employment for two years… thats common sense..

John answers:

Ignore credit bureau scores or credit karma. Insist on FICO Scores from http://www.myfico.com (costs about $20 each).

FICO Scores under 620 are unlikely to qualify for a mortgage.
If she qualifies, she will pay an extra 1 to 2 points and her interest rate will be 0.5% greater or more.

Carol asks…

Home Equity Loans?

Can someone please explain to me how home equity loans work?

John answers:

A home equity loan is a 2nd lien (or 3rd, etc) against the equity (market value – mortgage balance = equity) in your home.

It is a mortgage, but (most times) in a different form.

Frequently, HELOCs (home equity line of credit) is a loan which operates like a credit card. You may charge $ to the account and you must pay it back at certain interest rate (usually Prime Rate + margin), and often the minimum payment is INTEREST ONLY.

These loans are GREAT when the value of your house goes up, and BAD when it drops.

These are high risk loans today, because home prices are dropping. To get one, you must have lots of equity and high credit scores and make lots of income.

Best of luck to you!

Thomas asks…

Is it common to get a higher interest rate on an FHA home loan vs. a conventional loan?

I thought that interest rates were dependent on your credit score. I recently spoke with someone that told me I would for sure get a higher interest rate with an FHA loan with 3.5% down over a conventional loan with 20% down, assuming credit score and loan amount is identical. Thank you ahead of time for your helpful answers.
Based on lightupthesky’s answer, is this a question always answered with a large gray area? I thought PMI is supposed to help with the risk the bank incurs.

John answers:

FHA loans nomally run slightly higher interest rate than a conventional loan. With an FHA your payment will be higher than a 20% down conventional loan because with the FHA loan you will have mortgage insurance (MMI/PMI) added to your monthly payment with can add several hundred per month. If you can get a conventional loan it would be wiser to do so in most cases. Also, the cost for MMI with a FHA loan recently jumped substancially.

Conventional loans require a higher FICO score than a FHA loan, but the biggest difference is the amount required for a down payment and not having PMI with the conventional.

Both the FHA and Fannie-Mae/Freddie-Mac conventional loans are underwrittenen by a branch of the U.S. Government.

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