Home equity loan

How To Fix Up Your Home With A Home Equity Loan

admin — Sun, 07 Feb 2010 02:29:16 +0000

Fixing up your home is one of the most worthwhile uses of the equity in your home. Not only that, but it also adds comfort and beauty to your home as well – making it even more enjoyable to live there. Several ways exist for you to be able to get access to that money that is in your equity. Here are some ways that you can get that money and some things to watch out for along the way.

A home equity loan is one that becomes a second mortgage. As such, it has closing costs and other fees that apply to a regular mortgage. This means, too that there is an approval process and appraisal costs. It is like a regular loan in that you get all the money in the loan in one lump sum and then start making payments.

These loans are usually adjustable rate mortgages. This means you have no set interest rate and it will change from month to month – or from year to year. You can also get a home equity loan with a fixed rate if you look around, which will give you a much more stable payment, but will usually be higher than an adjustable rate mortgage.

One great feature of a home equity loan is knowing how much money you have to work with – you get it all at once. This does require you to know in advance how much equity you want, or you could simply take out as much as you can get. You will want to leave at least 20% of your home’s value in equity and not borrow against it. This is so that you do not have to pay Private Mortgage Insurance. It will also leave you a margin of money in case you ever should have to move. If you leave no equity at all in your house, it may become next to impossible to sell it – and you will be left with no money for a new downpayment.

You also need to know that, as a second mortgage, a home equity loan gives you a new payment to make each month. For this reason your lender will base the amount of the loan on both your ability to pay and your credit rating, along with your total indebtedness.

The amount of time that you have to pay a home equity loan is less than it would be with a first mortgage. Often for as much as 15 years, these loans can be adjusted to the time frame you want – even up to 30 years if you want to keep your payments low. However, you should also remember that the longer you pay – the more you will pay in interest.

When you go to get your home equity loan, be sure that you shop around and get the best deal you can. Besides looking at the interest rate, you will also want to notice the fees, closing costs, and other fees that will apply. Lenders can vary greatly in their terms and fees, so you should look them over carefully to find the deal that best matches your needs.

By: Joseph Kenny

Home Equity Loan – Scams To Beware Of

admin — Thu, 04 Feb 2010 11:54:00 +0000

Types of scams

There are several prominent kinds of scams doing the rounds, many of which may entrap unsuspecting borrowers. Here we list out some of them:

• Equity stripping: This typically involves a practice whereby even if the borrower doesn’t have sufficient income to support monthly payments on the home equity loan the borrower is still lured into securing a loan. The reason? The lender is never interested in the ability of the borrower in making monthly payments. The final objective is to secure the home. Therefore once the borrower is unable to pay the monthly payment on the home equity loan the lender will foreclose thus taking possession of the home and the equity.

• Hiding terms of the loan/ Balloon payment: This is probably even worse than equity stripping. In such cases, if the borrower is about to face foreclosure due to inability to keep up with monthly home equity loan payments, another lender offers to come to the rescue. In this scheme, the interest rates are lower, which may entice the borrower. However payment towards the home equity loan in such cases will only involve paying towards the interest. On completion of the loan term, the lump sum of the entire principal amount is expected to be paid by the borrower. On failing to pay this amount, the loan is foreclosed and the home is taken possession of by the home equity loan lender.

• Loan flipping: This practice is very common. If a homeowner has had a mortgage for quite a few years and wishes to get some extra cash, a lender will promise to do the same by offering a refinancing option. After opting for this refinancing option, once a few payments on the home equity loan is made, the lender will call to offer a bigger loan for a larger expenditure, probably a grand vacation. The borrower goes for refinancing, without knowing that each time he refinances, his debts are shooting up. This is because of rising points and fees on every refinancing.

• Home improvement loan: This is probably more of a nightmare than a home improvement scheme. A contractor will offer to remodel and refurbish your home for a reasonable cost. The contractor will also mention that he can get the work done through a lender he knows. Once the work starts, soon after the borrower is asked to sign a host of papers. The papers maybe blank or else maybe asked to be signed in a hurry. The borrower does not get a chance to read the terms and conditions. Only later does he realize it’s a home equity loan. The contractor may or may not complete the work on the house as he has no interest now that he has got the borrower’s money.

By: Alan Lim

Use A Mortgage Calculator To Guide Your Home Equity Loan Decision

admin — Thu, 04 Feb 2010 11:34:52 +0000

The difference between a home loan and a home equity loan lies mainly in that the home equity loan, also known as a second or even third mortgage, is issued at a higher interest rate. This interest rate is lower than you could expect to pay on a credit card, but it will be still higher than the original interest rate.

Use a home equity mortgage calculator to see what releasing different percentages of your equity makes to the payments required. The mortgage calculator then allows you to compare whether this is the best course of action open to you.

The alternative which may be more attractive financially is refinancing your home completely. This is where the mortgage calculator can really work for you. There are a number of options when refinancing, especially if you have a substantial amount of equity in the home. By inputting these, one at a time, into a mortgage calculator you can create a list which will allow you to clearly see which option benefits you best.

Home equity loans often seem far more attractive to the home owner than they actually are. This is because the lender is hoping to seduce you into signing your property into his hands. Find out all the details and use your mortgage calculator. See if what you calculates matches what they want you to sign for. Later you may find that it wasn’t such a good idea as your home suddenly becomes under threat of foreclosure because of some contractual obligation that you hadn’t fully understood.

Only in extreme circumstances should you even consider a home equity loan that completely strips your property of any value over mortgage total. Keep your payments affordable by using the mortgage calculator and always factor in an additional percent or two on the interest rate.

Refinancing your home is a major step, but as with a first mortgage this is the only claim on your property. If you take out a home equity loan instead, then you will have an additional lender who has a financial stake in your home. If you decide that you much prefer the terms on the home equity loan, and the mortgage calculator seems to bring it well within your budget, then make sure you read the small print carefully.

You need to know what the payments are for: are they just interest which will leave a large capital balance payable at a later date, for example? Make sure you can afford these additional monthly payments.

Here are a few don’ts that will help you in the long run:
* Don’t lie to yourself or your mortgage calculator.
* Don’t over-estimate your income under any circumstances; treat overtime money as “extra” if possible, and not part of your usual salary.
*Don’t over-estimate the equity in your home in the mortgage calculator. This can lead to false hopes which your property appraiser will quickly dispel.

If you are hoping to use the released capital to make home improvements, these should add value to your property. Look into this carefully to find out approximately how much you’ll be increasing your property’s value before committing to either the loan or having the work carried out. Failure to carry out the work means you are still responsible for the loan, but that you have not created any new equity.

By: Gerald Mason

Is a Home Equity Loan a Good Idea?

admin — Thu, 04 Feb 2010 09:53:16 +0000

First, what is a home equity loan? Well a home-equity loan is a second lien against your home’s equity.

I always consider my home equity as a safety net for those difficult times, such as, a job loss or family illness. My rule of thumb for debt management has always been centered on how much equity I had in my house. I would never have my debt exceed my equity.

Now let’s get back to the question. Is a home equity loan a good idea? If you manage your money wisely home equity loans are a good idea but only if you spend the proceeds on items that are a necessity and carry a higher interest rate that the home equity loan. A good example would be home improvements or educational needs. These items usually are quite expensive and require long pay-off periods. By using your equity you will be able to write-off your purchase interest on your federal and state taxes. Another example would be to pay-off high interest credit card and personal loans debt but you must make sure that once the debt is paid you can not accumulate any more credit card debt or you will become financially strapped.

Below are some guidelines if you’re thinking about borrowing against your home’s value:

Don’t waste the cash. Please be aware you’re attaching a new lien on the home, moving closer to the risk of foreclosure. If you do not make your payments on time, the lender has the right to foreclose on your home.

Don’t accumulate more debt than you can handle. As I mentioned earlier your total debt should not exceed your homes total equity.

Evaluate the tax benefits carefully. Review the IRS Publication 936 for details.

Avoid lines of credit unless you have the discipline to make the principal payment on time.

In conclusion:

It is important to carefully consider how you plan on using the equity in your home. If it is for home improvements, education like college or medical expenses then you are adding even more value to your home and personal growth and well being, which is good. If you are using it for daily spending, vacations, cars or other items that quickly depreciate in value, then you could be risking your nest egg and run the risk of owing money on your home far longer that the average 15-30 year mortgage.

By: Dennis Watson

Is a Home Equity Loan a Wise Decision?

admin — Thu, 04 Feb 2010 02:39:40 +0000

When the month continues to live on well after the money is spent, a very logical approach is to utilize the equity in your home to alleviate the pressure. But is this a good idea or a bad one? Take a look.

Consolidating may free up your dollars, but at what cost? Usually consolidating debt only prolongs the agony. Clearly it ends up creating a far greater cost because the time to pay a debt off is increase, which also means far greater compound interest applied to the debt.

But more than this, clients should be asking themselves what caused this problem in the first place. If no corrective action is taken, all that will have been accomplished is creating a set of circumstances destined to end in financial disaster as the client get further and further into debt.

When using the equity in your home to pay off high interest cards, the alluring feature is oft times a lower interest rate. If I am paying 19% interest on a credit card, a 12 % home equity is certainly appealing. But consider this. You are taking unsecured debt (i.e. credit card debt) and converting that unsecured debt into debt secured by your home… a very dubious financial maneuver. With a secured debt if you default on your payment, a higher interest rate may be the least of your problems. Now you could loose your home!

But there is another method worth considering. A Debt Management Program (DMP) through a proven debt-counseling agency could be a viable alternative especially if initiated at the first signs of trouble. Instead of taking out a new loan, a DMP sets up creditor a program that allows repayment at a lower rate. (See Results to see what your DMP program will look like.)

This should be a no-brainer though picking the right agency may take some investigation. Most agencies do not mention that they do not establish the payback formula as suggested at the above link. It is the same regardless of which agency you use. So there is simply no mystery involved as to what any agency can do for you.

The difference in agency is how flexible are they in meeting your needs, their track record and their procedural follow through. As a consumer, I would question or research each category beforehand.

1. Ask them specifically how flexible they are working with a client. Insure they offer very specific examples.

2. What is their success rate? Does the Better Business Bureau have numerous complaints about them? Has anyone you trust referenced them to you?

3. Ask the perspective agency about their procedures:

a. How often are checks dispersed? (It should be daily but routinely it is only every 2 weeks.)

b. If a creditor does not respond to a DMP proposal, how soon does the client follow-up?

c. Are billing dates adjusted so as not to create a late status?

One other area to be considered is simply how comfortable are you with the perspective agency? Does their proposal make sense to you? Are you more likely to come out further ahead with a home-equity loan or a debt management program?

By: Michael Killian

Home Equity Loan – What Are The Costs Involved

admin — Fri, 29 Jan 2010 15:51:43 +0000

Your home is truly an asset. If you manage to build up sufficient amount of equity around it, then you could go for a home equity loan. However, be sure to know the costs that come along with it.

Additional costs

Most home equity loan schemes come with attractive discounts and lucrative offers. However most borrowers do not realize that while initially the costs may seem lesser, from a long term perspective, the costs can work out to be quite a lot. For instance, the closure fees are usually quite steep in the case of the home equity type of loan. Even the associated fees and expenses can be much higher than regular loans in the market. Most often lending institutions hike up these rates in order to compensate for the lesser rate on interest. In addition to these fees and associated expenses, the borrower also needs to pay the interest for a period of time.

Tax deductible

One of the main advantages of a home equity loan is that the interest on it is tax deductible. You can consult with the accountant in your office in order to get a better idea of how it works. This can really work to your advantage if you plan on borrowing a small amount. This can save you a much higher amount as opposed to a regular line of credit that doesn’t work up that much savings. This is of course taking into consideration the closing costs as well as all associated fees of the loan.

Tenure of the loan

Another aspect that will largely determine the overall costs of a home equity loan is the duration of the loan. You may be misled into thinking that stretching the repayment over a longer term can result in smaller monthly payments and save you money, but it is actually the other way round! The longer the overall duration of the loan repayment period, the more costly it can work out to be in the long term. It is primarily because you end up paying interest for a much longer duration. This often exceeds the original sum of the mortgage. So while a shorter loan duration will result in larger chunks of payment each month, it is still much cheaper when considered on a long term basis.

Home equity loan vs. line of credit

Many people tend to get confused between a regular home equity loan and a home equity line of credit. However, the two are quite different. In the case of the loan, the interest rate is usually fixed while in the case of the line of credit, the interest rate is of the adjustable variety. This means that the interest rates will fluctuate depending on the prevailing market conditions. Thus a subtle difference between going for a loan or a credit line can significantly affect your monthly payments and savings too.

Negotiating

It is always better to be prepared before negotiating with your lending agency. Hence be sure to know enough about prevailing rates and then arrive at a discounted deal.

By: Alan Lim

Home Equity Loans – Are They the Best Way to Borrow Money?

admin — Fri, 29 Jan 2010 06:50:59 +0000

The Home equity Loan or HELOC has been around for many years and in the past has been a useful tool in helping middle class families do improvements on their home, send a child to college or even help provide starter capital for a small business.

The concept is based on the idea that your home is worth a set amount in the current market, for example $250,000. Your mortgage balance is a portion of that market value, for example $ 100,000 leaving you with $ 150,000 in equity. This equity can be accessed via a loan or line of credit up to a certain percentage of that equity amount. Any debt against that equity lowers the value of the equity above total debt (mortgage and Home equity). So a $50,000 loan against the equity would lower the available equity for future loans to $100,000. Or a line of credit (more common use of HELOCs) where $20,000 was actually used would lower available equity to $130,000.

Home equity loan repayments are tax deductible to the consumer and in a stable economy where interest rates are low a family with substantial enough income to make the payments or pay off large chunks of the loan can do well.

Unfortunately, the current atmosphere for these loans is bleak. People borrowed on the equity of their homes for any number of wise or unwise reasons and saw the value of their homes shrink along with any available equity. Some saw the reduction so severe that the loans outstanding were more than the worth of the house.

Also, unfortunate is the rise of unscrupulous lenders and their agents and brokers who decieved people into loans they could not afford such as mortgage brokers who neglected to tell their client about the escrow (property taxes and homeowners insurance) that would be due on top of their regular mortgage payment thereby doubling the anticipated promised payment to something less affordable.

Or the bank who gave kickbacks to appraisers to over-appraise a home so that more equity would be available; equity often borrowed on at the closing. More business for the lender, bad for the borrower.

When looking at a home equity loan try to find a reliable lender through research, ratings and word of mouth. Next, look at rates. Some are set at the Prime Interest rate or slightly above. They vary from lender to lender as well as do the closing costs. Next, determine the length of time on the loan. Remember the loan will be structured to indicate the amount of your payments representing interest only. If you pay via that method you will be paying interest but not decrease your principal.

Most importantly, do an honest self appraisal of why you wish to use the equity in your home.
Many people use HE loans to pay back high interest credit card debt. What happens all too often is that the credit card is not destroyed as it should be, but used again later. Credit card debt thus increases and the HE loan still hasn’t been paid off and so total debt has increased.

Going into debt can be useful if well planned and thought out but many times the lender is plunged into a cold, murky place where no matter what…the loan has to be paid back.

By: Alan Fernandez

Home Equity Loans Explained

admin — Thu, 28 Jan 2010 17:17:45 +0000

Home equity loans are fixed rate home loans that allow you to tap into the money (equity) you’ve already invested in your home to finance debts or other purposes at a lower interest rate than most revolving credit options.

With house valuations increasing considerably over the last 10 years many UK homeowners are unaware of equity loans as a way of raising finance.

For example if you are a homeowner with a house valued at £300,000 and you have an outstanding mortgage of say £100,000 you can use the difference of £200,000 as equity to take out a loan. A Home Equity Loan can be really useful if your existing mortgage lender will apply a redemption penalty if you wish to change your current mortgage. If you don’t want to pay this penalty a remortgage will not be possible so a home equity loan, which is independent of your original mortgage company, is a viable option.

Taking out a home equity loan online from is a much better option than selling your home to get the money. If you sell your home, you will be left with a lump sum of cash after paying off your mortgage. A home equity loan allows you to get that cash without selling your home.

One of the main benefits of the home equity loan which sets it apart from other loans is with this kind of loan the interest rate is likely to be lower (if not the best rate loan) as the lender has the guarantee that you can pay the loan back because of the equity in your property.

Although a home equity loan has many benefits you should also be cautious before taking out such a loan. Because it is still a secured loan with the property as collateral, a Home Equity Loan generally has lower interest rates. For the same reason, Home Equity Loans can be risky, because if you default on payments then you put the property at risk of foreclosure. The homeowner must also be prepared to pay off the loan balance when the house is sold.

Some lenders have stopped offering home-equity lines of credit and home-equity loans altogether, even to borrowers with good credit. And lenders that still offer these types of loans are being a lot more selective. The lenders that have cut back on home-equity loans and credit lines are mainly those that raise money by selling the loans to investors. And since the recent issues with sub-prime loans the lenders are being extra cautious about offering these types of loans.

Conclusion

An equity loan may not always be the best solution to all of your financial problems. However a home equity loan can become an important part of short-term financial planning. And, once the loan is paid, you’ll have the satisfaction of knowing that you’ve once again proven your credit worthiness.

By: Paul Hockney

Home Equity Loans Spotlight

admin — Thu, 28 Jan 2010 05:54:13 +0000

Home equity loans are taken where the borrower uses the home as collateral. These loans may be useful for home repair, medical bills or even for education. Most home equity loans require good to excellent credit history. Home equity loans come in two forms, closed end and open end.

Both of the above types are considered as second mortgages as they are secured against the value of the property just like any mortgages of traditional type. Home equity loans are usually (but not essentially) for a shorter term than first mortgages. In United States, Home equity loans interest can be deducted on one’s personal income taxes.

Closed end home equity loan

The borrower will receive a lump sum on sanction but cannot borrow further. The amount of money that can be borrowed are normally depends upon certain variables like appraisal value of the collateral, credit history of the borrower, income source of the borrower among others.

Normally, the borrower can take up to 100% of the appraised value of the home less any liens, although there are lenders that may go above 100% when doing over-equity loans. However, state law governs in this matter. Closed end home equity loans have fixed rates normally and generally amortized for periods up to 15 years.

Some home equity loans offer reduced amortization and at the end of the term a balloon payment becomes due. These larger payments may be avoided by paying minimum payment or by refinancing the loan.

Open end home equity loan

Revolving credit loan of this nature is also referred to as a home equity credit loan where the borrower has the option to choose when and how often to borrow against the equity in the property and the lender setting a initial limit to the credit line on the basis of some criteria as mentioned above for closed end home equity loans.

Similar to closed end equity loans, it is possible to borrow up to 100% of the value of the home less any lien. These line of credit are normally available up to 30 years at a variable interest rate. The minimum monthly payment may be as low as only the due interest rate and the interest rate is based on the prime rate plus a margin.

Home equity loan fees

Following are the list of possible fees that may apply to home equity loan: Appraisal fees, originator fees, stamp duty, title fees, arrangement fees, closing fees, early pay-off, and other costs are added in loans. Surveyor and valuation fees may also apply to loans, but some may get waved. The survey and valuation costs can also be reduced provided the borrower provides his own licensed surveyor to inspect the property under consideration.

Title charges in secondary mortgages or equity loans are fees for renewing the title information. The borrower should read and ask questions about the fees being charged to make himself sure about the fees since all these loans have some sort of fees tagged

By: Joseph Kenny

Best Home Equity Loan – Where to Find the Best Home Equity Loan

admin — Mon, 25 Jan 2010 21:48:34 +0000

If you are a first time home buyer you may be wondering, “What is the best home equity loan available for me?” The answer is that it depends on your circumstances. Below are a list of some of the types of loans that are available.

Fixed Rate Mortgage
The fixed rate mortgage is the most common type of loan available and it is usually a 30 year loan. Fixed interest means that the rate stays the same throughout the life of the loans, which means that they payment amount never changes so you’ll know what to expect to pay each month.

Adjustable Rate Mortgage (ARM)
The adjustable rate mortgage or ARM is also common, but less people choose to partake in it. The advantage is that the initial interest costs can be lower, but if the rates increase you may get a higher rate than you would have with a fixed rate. Then again your rate might stay the same or in same cases even go lower. The disadvantage to this type of loans is that when the periodic rate adjustments occur it can affect the amount that you pay back each month. So if you’re not expecting it your payment can increase. In the long run you might end up saving money with this type of loan, but you should have extra money in the bank just in case your mortgage payments change.

Federal Housing Administration (FHA) and Veterans Administration (VA) Mortgages
These are federally backed loans for veterans and government workers. These are the typical fixed rate and adjustable rate loans. However these loans are low or no down payment. The VA loans are only available to those who have served military service, but the FHA loans are open to anyone who can qualify for one, but the requirements can be strict.

The Internet has been an important game changer for the home equity loan market and because lenders are competing for borrowers on a massive scale it has led itself to lower rates. Some places that you should consider looking at are the LendingTree.com, LowerMyBills.com and the HomeLoanCenter.com Quicken Loans, Country Wide Home Loans, E-loan, Loan Web, and Net Bank. These will give you the best home equity loans at the most competitive rates.

If you have good credit most of these lenders will offer 100% financing and some will offer up to 125%.

If you want the best home equity loan then you will want to get a copy of your credit report before hand. Having a good score will help you to get the best rate available. You can do this at FreeCreditReport.com once a year.

By: Palmer Owyoung