When one reads about financial information it seems there is so much stated information, information in which, to most, is quite difficult to grasp and wrap their heads around. Between the used terminology, said concepts and financial topics one reads about when researching or looking into resolving a financial issue, it’s almost fair to say that reading them and comprehending them well enough would require some sort of astute financial background. Yet, this shouldn’t be the case.
This article will attempt to resolve this continual problem of trying to ascertain inescapably hard-to-understand financial information, specifically on such topics as home equity and home equity loans.
What Exactly Is Home Equity?
Home Equity is an exact amount -derived through calculations- of money directly taken and verified from one’s home value. Home equity is calculated by taking the current market value of a homeowner’s home minus the overall remaining mortgage balance figure. So, for instance, if one’s home was appraised at $275,000 (this being the current market value of the home) and one’s principal mortgage balance remaining on the home is $150,000 then one’s home equity portion would be $125,000.
Having equity on one’s home can be a very advantageous possession, especially if the equity is hefty. One way in which equity can be used with benefits in mind is using such built up equity to qualify for a sizable amount of credit at a relatively low interest rate.
Where Do Home Equity Loans Come In?
Typical to prospective home buyers, any residential property is bought through a mortgage. After this, the mortgage is paid off through a series of years, usually from 15-30 years. Once the mortgage is paid in full the property then belongs to the mortgager, or more simply put, the home buyer. During the time in between paying one’s mortgage and finally paying it off, the home buyer builds up accrued equity in his or her home.
The amount of actual equity on a home is what home equity loans borrow against. Keep in mind that since equity cannot be sold, banks and creditors will lend monetary assets against it.
Obtaining Credit Through One’s Equity
Usually, depending on the worth and mortgage payment stance on one’s home, mortgagers will often have a substantial amount of built up equity in their home. This fair amount of equity can be put toward collateral utilization, specifically to obtain sizable amounts of credit for any and all purposes. In essence, taking on a home equity loan is turning one’s equity into cash. Doing this can allow an individual to use such cash toward a plethora of actions which can include various home improvement projects, debt consolidation ventures, college education expenses as well as plenty of other weighty financial motions. Sometimes, home equity loans are known as HELOCs, being referred to as a type of second mortgage. They are simply referred to as such because these types of loans are secured by your property, just as a primary mortgage is.
By: E.S. Cromwell
Posts Tagged ‘Home Equity Loans’
The Run Down on Home Equity and Home Equity Loans
December 26th, 2009Home Equity Loans VS Home Equity Lines Of Credit
December 4th, 2009
Working as a financial consultant, I get hundreds of emails and calls everyday inquiring about many different financial products. I have noticed that home equity loans are a very common source of doubt for my customers. As regards home equity lines of credit… well, let us just say that great many people do not even know of their existence. It is a real pity that these products are not better known because they are incredibly versatile as they can be used for many different purposes. They are also very cheap sources of finance.
That is why I decided to write an article on the basic concepts of both of these fantastic financial products.
Home Equity Loan
Home equity loans are usually referred to as second mortgages, because they are secured against the value of the house. The borrower uses the equity on his property as a collateral for the loan. So… what does equity mean? Equity is the different between the property’s market value and the remaining balance of the mortgage and any owed debts related to the property. If you have finished paying the mortgage on your home (or never applied for one), then the equity on your home is 100% of the real value. If you have already paid 40% of the home, then the equity will be worth 40% of the real value of the property.
Loans based on the equity on your home are marvellous. They are granted almost to any home owner and their terms are usually extremely favourable. Not only are the interest rates very low, but they are also deductible!
What use can the borrower give to the money? Well, that is the beauty of this type of loan. You can do anything, the world is your oyster! Whether you need to remodel your house, add rooms to it, go away on a long vacation, purchase a used or new car, or even acquire a second property, home equity loans can help you in so doing. There is no limit to what you can do, only your imagination.
Repayment plans range from 5 to 20 years, and as you might have noticed, they are somewhat shorter than the repayment plans on mortgage loans.
Home Equity Lines Of Credit
This credit is also know as an open-end home equity loan. It is also a loan based on the equity on your home, but it has one major difference: you decide how much and how often to withdraw funds. The lender sets a limit on how much can be withdrawn, but once this amount is repaid, the borrower can take out funds again, and so on.
Lines of credit based on equity are perfect for you if your monthly income is variable (as often happens with self-employed people). There is a minimum monthly payment which consists of the interest rate if you have not withdrawn any funds.
If what you are looking for is flexibility, then a line of credit will be just perfect for you. No fixed monthly payments, instant availability of funds at your best convenience, among other advantages.
Now you are fully aware of what these two equity based credit products have to offer, it is up to you to choose the one which best meets your requirements.
By: Mary Wise