Home Equity Loans – second mortgage

Greg Smith asked:


Home equity is the value that your home has due to the payments that you have made on your mortgage. A home equity loan will enable you to borrow money using the equity that your home has as the collateral. It can be confusing to deal with all these terms but the reality of the situation is that you have to arm yourself with the knowledge of these terms. It is important to learn the definitions and understand what they mean when you are thinking of sourcing a home equity loan.

One of the first terms is collateral. This is the property or asset that is put as the guarantee that you will repay your debt. If this debt is not repaid then the lender is able to take the asset and use it to attain their money. With home equity loans the asset on the line is your home and you can be forced to move out of the home and lose the home if you default on the loan. The equity simply of your home is calculated simply as the difference between the worth of the home and the amount you owe on the mortgage.

You can use a home equity loan, which is a second mortgage to turn equity into cash, and this money is made available to spend on many items such as debt consolidation, home improvements, college or any other expense that you may have. There are in reality two main types of home equity debt. These are known as home equity loans which we mentioned previously and home equity lines of credit. These are often confused but they are not identical even though they are both secured by your property.

The typical home equity loan or line of credit is repaid in shorter times than mortgages. They are set up to run 15 years rather than 30 years but can be significantly shorter or longer depending. A home equity loan is a lump sum that is paid off over a set period. This is at a fixed interest and steady installment per month. This is one time and you cannot borrow again. The home equity line of credit operates a lot differently. There is a revolving balance that lets you borrow a certain amount for the duration of the loan or other set time limit. You withdraw as you need and pay off the principal and reuse.

There are various benefits and disadvantages of these two but this really depends on your unique situation. While there is more flexibility with the home equity line of credit there can also be some downsides due to the fluctuating interest. The home equity loan also has its disadvantages as it is possible to pay only interest and not principal and remain in debt. Whichever you opt for you must be aware of all the possibilities and how to avoid the downfalls. This can help you use either to your advantage and assist in keeping you away from the possibility of losing your home.



OTTO

Joseph Kenny asked:


When you are looking for the cash you need to fix up your home, a home equity line of credit (HELOC) may be just the thing for you. This would be especially true if you have a project in mind but are not sure what it may cost. A HELOC could be just the solution you are looking for – because it offers you cash with different options than a traditional mortgage. Here are some of the benefits.

A home equity line of credit is to be considered as a second mortgage. After you fill out the paperwork, and the lender looks over your credit report and your ability to repay the loan, you will be given a credit limit. This means that an account is set up for you, and you will be given access to it either with a credit card or with checks. This way, you can draw out the money as you need it, and only as much as you need.

A home equity line of credit is usually based on a 25 or 30-year time frame. There is a draw period and a payment period. The draw period could be up to 11 years, and the rest of the time period is used for repayment.

You only pay interest on the amount that you draw out. This is an excellent way to save some money, because you still have access to more if you do need it. During the draw period, you will be paying interest – adjustable rate, on the amount of money you have taken out. The interest rate does not amortize the loan in any way – since you are only paying interest.

At the end of the draw period, however, the amortization period starts. Your payments will be calculated on how much you have withdrawn and your payments will be determined at that time. These payments will fully amortize the loan within the time remaining – most of the time. Some lenders do not calculate the payments to fully amortize the loan. Obviously, you will need to watch for this before you sign the agreement.

Home equity lines of credit can come with a number of repayment options. These range from balloon payments at the end of the draw period, to simply monthly payments for the rest of the term. Other options that may be included is the possibility of renewability. Some lenders give this option for those who want an ongoing line of credit.

Before you sign up for a home equity line of credit, though, be sure to compare a number of quotes first. A home equity line of credit may have monthly fees, annual fees, and more, so be sure you know about them all first. By comparing several plans, you can find the one that will be the least expensive, have the lowest rate of interest, and will be the best for you.



MELVIN

Susan Jan asked:


Generations past used to enjoy tax benefits on their interest payments on certain loans such as consumer loans. Unfortunately, these tax benefits did not extend to this current generation, and even as we cough up a huge amount every month on interest payments on various debts such as your credit card debts, you can no longer enjoy the same level of tax relief. However, there is another option today that will allow you to consolidate all your high interest debts into one low interest loan and even to secure good tax benefits for repaying the interest on it. This option is the home equity loan, and it is open to any homeowner, who can then use the loan for more efficient debt management.

Homeowners often obtain home equity loans for the purpose of restructuring or repairing the house. It then becomes a kind of long-term investment. However, you may hesitate at the thought of putting your house up yet again for a second mortgage. But if you are to enjoy lower interest payments and some tax benefits, you should not hesitate at all at taking this loan, or even wasting your time looking into other forms of loans to consolidate your debts. If you are already struggling with managing all you debts, then a home equity loan is your best solution for refinancing and managing your otherwise unmanageable debt.

By arranging to refinance your debt through a home equity loan, you are not further adding to your existing debt amount. This debt consolidation plan allows you to transfer all your various debts such as your credit card debts, with all their different due dates and interest rates, to one lender. For the repayment of this consolidated second loan you are paying a lower interest rate as a part of a fixed repayment plan.

Thus the convenience of making a single payment at a lower interest rate to one lending institution is just one of the benefits of home equity loans. In addition to this convenience, you also get to enjoy a tax benefit. This tax benefit along with the financial gains of paying a lot less interest, indirectly adds to your net gain.

Before committing to home equity loan you should make sure that you are in a position to pay back all the debts within the given period. Otherwise you will be putting your home at stake. So be careful about your spending habits, and be particularly wary of accumulating debts on your credit card.



SAM

JUICER asked:


I have 2 properties in florida. one is investment and the other is second home. I have not defaulted on any of my loans and both me and my wife have credit scores of 760 and above. I am spending more than i earn right now to maintain these mortgages and fear that if the one with a payoption arm recasts i will go into foreclosure. can i modify even though i am not in default as of right now? there is no equity in the home the mortgage is now more than the home is worth. what are my options? what are the repercussions for homowners who just stop paying their mortgages? can they foreclose on my primary if i stop paying my investment home? please advise.

COREY

Carrie Reeder asked:


Getting approved for a personal loan with recent or past credit problems may pose a problem. Because of credit blemishes, most lenders are hesitant to offer money to those with a low credit rating. Thus, acquiring funds for large expenses or emergencies is impossible. On the other hand, if you own a house, you may qualify for a home equity loan with poor credit.

What are Home Equity Loans?

Home equity loans are funds secured by your home?s equity. Because the cash is collateral-based, it is easier to qualify for these types of loans. Thus, individuals with poor and good credit may obtain a lump sum of money within a few days.

If applying for a home equity loan, you can receive funds up to the amount of your home?s equity. Therefore, if you owe $50,000 on the home loan, and your home?s assessment is $120,000, the equity would total $70,000. If acquiring a home equity loan, you may get approved for up to $70,000.

Why Get a Home Equity Loan?

Homeowners acquire home equity loans for assorted reasons. Debt consolidation is a motive for getting a home equity loan. Through debt consolidation, homeowners are able to shrink or reduce their debts. Use the money to payoff credit cards, consumer loans, auto loans, student loans, etc. Furthermore, home equity loans are ideal for making home improvements, taking a vacation, or paying for a child?s college tuition.

Home equity loans will create a second mortgage. Because home equity loan balances are smaller and the terms shorter, the monthly payments are less than first mortgages. Moreover, home equity loan balances are paid within ten to fifteen years.

Home Equity Loan Basics

For the most part, home equity loans have fixed rates. Thus, your monthly payments will remain the same for the period of the loan. If you have bad credit, these loans are the easiest to qualify for. Nonetheless, bad credit applicants should do everything possible to get the lowest rate.

When shopping for home equity loans, it is important to compare rates. Contact a variety of money sources. Completing online applications with mortgage brokers will provide you with multiple offers within minutes. Furthermore, you should manage your credit score. Review your credit report and check for inaccuracies. If possible, attempt to boost your score before applying for loan.



HARLAN

rsc asked:


I have about $60,000 in my cash accounts (banking and savings). Some of this money is in a savings account that I would consider my emergency funds. I have a very generous retirement program of about 12% of my salary, which has been established for about the last 6 years. I am 33 years old, with a wife that has a job and a generous retirement plan and 1 baby.

I have some other small mutual funds that I started from savings which are 3-10 years old and have a current value of approximately 12,000 dollars.

I have a mortgage. We purchased it for $579,000, and we put down 10%. The first loan was a 7 year arm at a rate of 6.5%, and the second loan was a home equity line of credit for $ 57,900. The second loan is a variable rate, pegged to the prime rate. When I first started that loan, it was at 8.5 %, but it is now as low as 4.2 percent. This, of course, changes with the prime rate. The first loan I pay on principle, and the current debt service is $ 448,000. The second loan is interest only, and still has a principle balance of $57,900. The down turn in the housing market has left me with only about 2-4% equity in my home as the latest appraisal was only $520,000

My only other debt is a car loan which has a balance of 15,000 and a rate of 5.25%.

What should I do with this extra cash?

Do I:
1. Pay down that line of credit? (obviously this has a variable rate that can change, and is currently taking up 100% of my line of credit which impacts my credit score)
2. Buy a second property? There are some good deals out there for a second home (i.e. condo in Florida) or a rental property. This would be an investment property since we can get something very cheap, but the downside is managing the property.
3. Put it in an invest vehicle? A mutual fund, bonds, etc.
4. Leave it in my savings account?
5. Or something else?

How much of that cash should I keep in my account versus investing or paying of my debt?

SHELDON

Luvinmylife2 asked:


I have excellent credit and zero debt. My house is paid for, debt free, and I do not have any outstanding debt. I have had loans in the past, but I’ve paid them off. Therefore, I do not have a credit score. I want to tap into the equity on my house and take out a second mortgage on my home, but the bank says that I do not have a credit score. Does anyone have any ideas on how I can get a competitive rate with no score?

RIGOBERTO