Home Equity Loans – second mortgage

Dina Wilson asked:


When you obtain a home equity loan, you are borrowing money by using equity in your home as collateral. Equity is the difference between the appraised value of your property and the amount you owe on your mortgage. Home equity loans online, also known as a second mortgage, provides you with a fixed amount of money, repayable over a fixed period of time.

A benefit of home equity loans online of credit is that the approval process is less stringent than other loans. However, a lender will still look at your creditworthiness and the market value of your home. A home equity loan of credit often allows for a higher percentage of the appraised value to determine the maximum amount of the credit. Also, closing costs are usually lower than a home equity loan. In fact, there is so much competition that many lenders offer home equity of credit with no closing costs. Beware that these loans may have a higher initial interest rate, so compare the APR carefully.

Interest rates on home equity loans online are typically fixed, although there are variable rate programs available. The term on these types of loans can vary in between 5-25 years. The process of borrowing for these loans works similarly to a first mortgage. The lender will have to qualify you by looking at your liabilities, assets, and creditworthiness, as well as appraising your home.

Now, you find a straight answer of all your financial queries in home equity loans online. To qualify for this loan, borrower is supposed to bid any of his assets as a guarantee of the loan amount. In this way, the borrower shares the risk factor with the lender and gets lower interest rates in return. The whole concept of collateral signifies that the lender can realise his loan amount with that of assets of the borrower, if the repayment is not made in time.



MITCHEL

Alan Lim asked:


 

A loan taken out for the purpose of transforming the equity in your house into cash that can be used for other purposes is known as a home equity loan.  A loan taken with the equity in your home as collateral can be structured in many ways. It is actually a second mortgage in many ways, and will result in less of your home’s value being accessible should you decide to sell the property.  It is an excellent way to obtain access to a sizable amount of cash, depending on the amount you owe on your home and the market value of your home.  The difference is your home equity.

 

Advantages

 

Most borrowers determine that the home equity loan works to their advantage.

 

Single Payment

 

Using a loan against the equity in your home as opposed to trying to take out a combination of personal loans and increased credit card debt means that you will only have one payment monthly for the loan rather than a half dozen or dozen small ones.  The home equity loan as a single unit is probably going to be easier to obtain than numerous smaller loans all at the same time.  You only need remember the due date and amount on one loan and thus you can prepare for and budget well into the future.

 

Available Cash

 

When you take out an equity loan on your home, it usually results in a larger amount of cash available to you all at once.  No matter what the reason for the lump sum cash is, having it in one sum often serves as a way to give you a clean start from financial problems that are eating away at your financial freedom and at your sanity.

 

Disadvantages

 

It is important that you not lose sight of the disadvantages of the loan against home equity.

 

Increased debt

 

When you obtain a home equity loan, even if it is to pay off other debt, you will almost always increase the total amount of debt that you owe.  You should study carefully whether the increased debt is offset by the advantages that a single payment–possibly smaller in size is worth going even further into debt.  If your goal is to change the ability of your family to meet future obligations or to add to the debt load as an investment toward the future, such as paying for a college education for yourself or your family, the debt load may be justifiable.

 

Economy of the area

 

Before taking out a home equity loan, it is important to look realistically at the area’s economy.  If housing prices in the community or in your neighborhood are beginning to fall, obtaining an equity loan to improve your home so that you can sell it and move on may not be a good idea.  You may find that the increased asking price necessary to clear the loans on your house will mean no buyers will be able to qualify to purchase your house.

 



DREW

Rebecca Noel asked:


With any remodeling and construction projects you do on your home there are many payment options available for most home improvement remodeling projects. For example, you can get your own loan such as a home equity loan or credit equity line or ask the contractor to arrange financing for larger projects. For smaller projects, you may want to pay by check or credit card.

For the larger projects a home equity loan, or a credit equity line also known as an equity home line of credit, can be a good solution because the interest rates are often better than other types of loans or credit and, depending on the amount of equity you have in your home, you might also be able to use it as a debt consolidation loan at the same time to pay off high interests credit cards and other high interest debt so you can be relatively debt free with just the equity home line of credit at a lower interest rate and improve your home and bring up its value at the same time.

What is the Difference between a Home Equity Loan and a Home Equity Line of Credit?

A home equity loan is a loan that is secured by your home. It is also sometimes referred to as a closed-end home equity loan or a second mortgage and is a fixed amount of money that must be repaid over a fixed term just like your original mortgage. You get the entire loan amount upfront all at once. You have predictable, consistent monthly payments.

A Home Equity Line of Credit in many ways is similar to a credit card. It is a a form of revolving credit in which your home serves as collateral. You can borrow as much as you need, whenever you need it, by writing a check as long as your total borrowing does not exceed your credit limit.

Because it is a line of credit, you make payments only on the amount you have actually borrowed, not the full amount available. What makes a Home Equity Line of Credit so popular is that interest paid is usually tax deductible under federal and most state income tax laws.

Whether you use a home equity loan or a home equity line of credit for a home improvement project or as a debt consolidation loan or both it’s a great way to make your debt tax deductable and improve the value of your home at the same time.



HECTOR

melinamenny asked:


 

Getting a Home Equity Loan



Making the decision to take out any kind of loan is worth thinking about, and knowing your options may help make it final. When you take out a home equity loan, you are really taking out a loan on the equity you have invested in your house. If your house is worth $150,000, and you have a mortgage balance of $70,000, then you have built up $80,000 worth of equity. Potentially you may be able to take out a loan on any amount under $80,000. Some lenders will only give a loan on a percentage of the value of the house, usually about 75 percent.

 

Finding a lender may be easy, but it is wise to shop around before you decide what lender to accept a loan from. You will want to make sure you know what the interest rate is, and any other terms the loan will have. Will the home equity loan be a revolving line of credit, or a lump sum? Do you want all you can get, or just a portion of what may be available to you? What will you use the loan for? Is it considered a risky investment? Will the loan be worth putting your house up as collateral?

 

Answering these and any other questions you may have before you actually take out a loan is important, and may help you decide how much of a loan you need, and what terms you want to try to find from a lender.

 

There are Many Uses For a Home Equity Loan



Looking at the possibilities of how you can use a home equity loan may make the reality of your needs, and desires, more attainable. Home equity loans can be used for a variety of things.

 

Many people have a hard time paying down high interest debt they have acquired. Using a home equity loan to consolidate credit card debt, car loans, and any other loans you may be paying on, can save you money that would have been paid on interest rates. It will also help you be more organized by making it easier to keep track of one loan payment rather than many payments each month.

 

Using a home equity loan to pay off medical bills is another possibility. If you have a lot of medical bills you owe or have been putting off treatment for a medical condition because of a lack of money, taking out a home equity loan can be a great help to get the bills paid, and get the treatment you need.

 

Another thing a home equity loan can be used for is to pay off student loans. Student loans are federal loans, and they usually carry a high interest rate. Using a home equity loan to pay them off may end up saving you quite a bit of money, and help keep your credit rating up.

 

You could use a home equity loan to make your home more energy efficient. Putting in new windows or a high efficiency furnace will help lower your utility bills. Needing to spend less on heating your home will give you more money to spend on other things. Making your home more energy efficient also raises the value of your home, so you may be able to sell at a higher price.

 

Another way to raise the value of your home with a home equity loan is to use it to update your home. Insulating it, putting on a new roof, improving the kitchen or bathroom, is an investment in your financial future. Updates increase not only the value of your house, but they also raise the amount of equity you have placed in your home.

 

Putting on an addition, paving your driveway, or installing a pool are some other ways you can use a home equity loan. These things add to the value of your home, and also make it more desirable to buyers when it’s time to sell your house.

 

You could even use your home equity loan to take a long awaited vacation. Using it for recreational purposes may not increase the value of your house, but it would give you some rest and relaxation. This would help remove some of the stress of working and dealing with life on a daily basis. Taking a vacation is an investment in yourself, and can refresh you to the point of helping you think clearly and reduce your stress.

 

Things you may not want to use a home equity loan for



Since taking out a home equity loan requires using your house as collateral, you will want to make sure you are using it for improving the quality of your life, and not taking a high risk with it. Most lenders have standards they follow, and are wary of lending money for things considered a high risk. This protects them from having the loan defaulted on, and it protects you, the borrower, from losing your home.

 

Investing in stocks, new companies, and many other types of investments, is considered high risk. Beginning a new business may be considered a high risk. Taking risks that may cost you your house should be considered at great length. If you want to begin a business, there are other types of loans that may be more beneficial for you. Using a home equity loan for such a venture may end up costing you more than you bargained for.

 

Looking for the best possible deal, and not taking the first loan offered to you, could make a big difference in your finances. Finding an interest rate that will be fair, and terms of the loan that will meet your needs, and help you do what you want and need to do with it, will make it easier to pay it back.

 

Remember, a home equity loan is like a second mortgage, and will mean making a second mortgage payment each month. One good thing about this type of loan is that usually the interest paid is tax deductible, unlike other types of loans you may be eligible for. If you want to read more about the various uses of a home equity loan, visit the FHA website.



COURTNEY

Chris Navi asked:


Americans saw the value of their homes jump an average of 13 percent over the past year, according to the Office of Federal Housing Enterprise Oversight. This has made it easier than ever for many homeowners to qualify for a home equity loan or line of credit.

With their low interest rates, these secured forms of credit can be your most effective way to borrow money. Plus, loans of up to $100,000 often offer the added benefit of being tax deductible (check with your tax advisor). But it’s important to choose the right home equity loan for your needs and to use it wisely.

Smart Borrowing

Financing a renovation that will add value to your home, such as a new kitchen or a second bathroom, or helping with your child’s college tuition, are valid reasons to borrow on the strength of your home equity. This is especially true since the borrowing costs are generally much less expensive than debt that is not secured by collateral.

By the same token, shifting hefty balances you owe on credit cards to a home equity loan can be a good move. Your credit cards are likely charging annual interest of 13 percent or more, so consolidating that debt with a home equity loan can easily slash your borrowing costs in half.

Remember though, the idea is to eliminate your debt, not make room for more of it.

A home equity loan isn’t free money. At the end of the day, your home is what’s backing the loan. So if you miss payments, the lender could take possession of your home.

There are also important differences between a home equity line of credit and a home equity loan — differences that can help you determine which is a better choice for you.

Home Equity Line of Credit

A home equity line of credit (HELOC) allows you to use as much or as little of your pre-approved limit as you like. Plus, you are charged interest only on the portion of credit you are currently using, which keeps borrowing costs low. The rate of interest floats slightly above the prime rate.

This flexibility is helpful if you’re looking to do a series of small home renovations over a long period of time, or perhaps finance the start-up of a home-based business.

* The advantage: If the prime rate decreases, your cost of borrowing will become cheaper, and interest rates are still very low compared to previous decades.

* The disadvantage: If the prime rate increases, your borrowing costs will increase as well. If you find it difficult to squeeze in credit-line repayments now, you may risk missing some repayments altogether when interest rates go up.

Also, depending on the terms of your particular HELOC, you may be required to pay only the interest accrued each month. On the upside, this means your minimum payments will be low during the interest-only period. On the downside, you will not be rebuilding any of that valuable home equity you’ve just borrowed against.

When the interest-only period ends, you will be faced with one of two scenarios. You may be required to begin paying back the loan principal (the original amount you borrowed). That means your monthly payments will increase, and if you don’t have enough cash coming in to cover those larger payments, you could be in trouble. Or you may be facing what’s called a balloon payment, meaning you must pay the entire outstanding balance of your HELOC in full.

Always try to pay more than the minimum each month, so you are constantly chipping away at your loan principal.

Home Equity Loan

A home equity loan has a fixed interest rate. You receive the full amount of the loan in a lump sum, which makes it a good choice for large, one-shot expenses, such as a home renovation or debt consolidation. And because you must pay it back in regular increments over a specified period of time — often 10 to 15 years — a home equity loan offers a measure of built-in discipline for those who may be tempted to use the “interest-only” payment option offered by some HELOCs.

At the end of the repayment schedule, a home equity loan will be repaid in full.

Loan-to-value ratio The general rule is you can borrow 75 to 80 percent of your home’s current appraised value, minus what you owe on your first mortgage. This is called the loan-to-value ratio (LTV). For example, if your home is worth $200,000 and you owe $100,000 on your current mortgage, you could borrow an additional $60,000 and still be within an LTV of 80 percent. Staying within the sensible 75 to 80 percent range will help you avoid repayment problems down the road. However, some lenders have begun to offer a “high-LTV” option in which you can borrow up to 125 percent of your home’s equity. Beware: If you decide to move because of a job transfer or other reasons, the sale of your home may not provide you with enough money to pay off both your mortgage and the outstanding home equity loan.

Borrowing conservatively is always wise.



MICHEL

Crystal Mate asked:


In a November, 2007 report, the Canadian Association of Accredited Mortgage Professionals (CAAMP) stated that in the previous 12 months, 17% of mortgage holders took out home equity loans or increased their mortgage. The average equity loan was $35,400.

What are people doing with all this money? Paying down debts, sending the kids to school, investing in their homes – there are many possible answers to that question. If you’ve ever considered tapping into your home’s equity, the following FAQs can help you decide whether home equity loans are the right strategy for you.

What Are Home Equity Loans?

Home equity is the difference between the market value of your home and what you still owe on the mortgage. So if your house is valued at $300,000 and you still have $260,000 outstanding on your mortgage, your equity would be $40,000.

Home equity loans enable you to borrow against that equity. These loans are also known as second mortgages because they are a second loan (the primary mortgage being the first) that uses your house as collateral.

How Much Can You Borrow?

With most home equity loans you can borrow anywhere up to 85% of the amount of your home equity. For the case above, with $40,000 in equity, the homeowner could borrow $34,000.

Some lenders have more generous options, even offering to lend 100% of the amount of equity in your home.

How is a Home Equity Line of Credit Different?

A home equity line of credit (HELOC) is much the same as a standard line of credit, but it uses your home’s equity for security. With a HELOC you can typically borrow up to 90% of your home’s equity. With $40,000 in equity, you could obtain a HELOC for $36,000.

With a HELOC, you do not necessarily have to use all of the credit at once. You can use it as needed and pay back what you borrow, just like a standard line of credit.

On the other hand, home equity loans are one-time, lump sum loan. If you need more money, you’ll need another loan.

The general guideline is that a HELOC is best for those who need access to varying amounts of money for ongoing expenses, whereas a home equity loan is better suited to those needing a specific amount for one large expense, like a home renovation.

What About Interest Rates?

Home equity loans typically have fixed interest rates, while HELOC rates are variable. The interest rates for both are typically pegged to an institution’s prime rate, and are often significantly lower than those charged for vehicle loans, credit cards and personal loans.

What is Mortgage Refinancing?

With refinancing, you pay off your existing mortgage and obtain a second mortgage for a lower interest rate. With a “cash-out” mortgage or refinance you can borrow more than what you owe on your mortgage. You can then take the extra money and use it for expenses like tuition, home improvements and so on. Refinancing may include costs for mortgage fees and prepayment penalties.

What are the Pros and Cons?

On the plus side, home equity loans provide low-cost credit for important expenses. In extreme cases, the risks are that the home market slows and you end up owing more than the value of your home, or that you overspend and default, which means the loss of your home.

For many people the pros outweigh the cons. To be sure if a HELOC or loan is right for you, it is best to consult with a mortgage professional.



ERICH

Johns Tiel asked:


The home equity loans are good for one time large monetary plans. The borrower in these loans can use the equity of their home as collateral for getting the required money. Not only the good credit holders, a special type of loan has been made for the bad credit holders too and these are known as the bad credit home equity loans.

Large monetary requirements like buying a car, repairing your house, paying large debts off or paying huge medical bills can be handled with these loans. It offers an amount ranging from £5,000 to £125,000 with a repayment term of 5 to 15 years. For getting this loan amount you must place the equity of your home as collateral. The value of the collateral decides the loan amount in it. So, you may find some lenders that are willing to offer 100 percent of the home’s value.

This equity is decided by finding out the difference between the market value of a home and the value to be repaid. This can be explained with an example- suppose; you have bought a home for £ 100,000 two years ago and have repaid £25,000 to the lender till now. If the market price of that house has now risen to £150,000 then the home equity will be the difference between the money left to pay the lender and the present market price, i.e., £75,000. This home equity, you have to keep as collateral for getting these loans.

These are also said to be the second mortgage as the collateral offered here is the equity of a property. The repayment term too is shorter than the first loan.

Home equity lines of credit are certain kind of loan that holds the greatest advantage of lower interest rates. Tax benefit is another reason for which people mostly prefers to go for these. Thus, the bad credit home equity loans are of good help and use to the borrowers with bad history. CCJs, arrears, late payment, defaults and bankruptcy are allowed here.



JOHNNIE

Lesley Lyon asked:


It is difficult to manage the finances with the ever-increasing default rates and delinquencies. The prospect to having to pay many bills of different amounts every month from the existing loans to medical expenses, credit cards and so on can be of great pain. It is not only difficult to have a track of all the expenses and bills but also the cumulative costs can sum up to a big amount. This is where the home equity loans might come to the rescue, as it helps to pay only one bill every month.

Home equity loans may help get the finances organized and also to plan accordingly. Home equity loan makes debt consolidation possible. Home equity loan lets the person to have the flexibility of planning ahead for other living needs through debt consolidation. Outstanding loan amounts, credit card bills and other kinds of liabilities may involve paying high interest rates and expenditure. A home equity loan helps in paying off the entire debts and also allows keeping some cash in hand. This leaves the person with high earning balance, which is got after the deduction towards monthly repayment of home equity loans. Hence home equity loans are said to be the best method for consolidating loans with higher interest rates.

Home equity loan provides an opportunity for the house owner to borrow money by producing collateral in the form of pledging the house. The loan is obtained without any strain even if the applicant has a bad credit because the lender views it very safe to provide loans having the house as collateral. The money borrowed is also more making it very useful to clear off debts with higher interest rates.

The home equity loan comes with a lower interest rate than any other unsecured loans. The repayment term and the amount to be paid every month is known and budgeting can be done accordingly as it can be got with a fixed rate of interest. The home equity loans repayment term ranges from five years to twenty years. It provides the flexibility to consolidate debt and fits the budget. If the debt consolidation balance is more then the person can go for a longer repayment period plan as it will provide lower monthly payments so that other living expense needs can also be met along without difficulty.

Home equity loans are easy to obtain. To qualify for home equity loans a reasonable credit score is required along with a sufficient earning potential to handle the additional debt. Since a home equity loan is a second mortgage another payment will be added to the debts. With the help of debt consolidation the second mortgage with a lower payment will replace all the other debts making the same amount of debts to be handled easily. Home equity loans come with a adjustable rate mortgage or fixed rate mortgage. It is upto the person to decide the kind he would need. The person can get even more amount of equity loan than the amount required for debt consolidation.



HARRIS

Ken Charnly asked:


A home equity line of credit is a loan you take out against the amount of your mortgage that you have paid off.  Home equity lines of credit are relatively easy to get, have low rates, and their interest is deductible. The down side is that if you can’t make your payment, you lose your house.

Your creditor or bank will calculate your equity by subtracting the amount of your mortgage from the current value of the house. This leaves the amount you’ve paid. Take 80 percent of that and you have the loan you will probably be offered by most banks.

If you own a home that is valued at $250,000 and your unpaid mortgage is $150,000, you have $100,000 equity in your home. 80 percent of $100,000 is $80,000 and that’s how much you can usually borrow.

Whether or not you get this home equity line of credit has nothing to do with your income, investments, stock, your liquid capital, how much cash you have in your savings account, credit cards, or credit reference. It has nothing to do with the financial state of your family, your husband or wife, or where you work.

Unfortunately, if you fall into debt or one of your children falls ill and you have no extended family to rely on for finance, you could lose your home. A home equity line of credit is essentially a second mortgage and two mortgages means that you’ve essentially put up your house as collateral.

It is not a good idea to stake your residence and family’s funds on a non-essential purchase like a vacation home or adding on an extra family room or bathroom for when your mother or father come visit. There’s no point in making the homestead more homey if you have nothing more than hope that you will be able to maintain the payments. It’s an extra immediate payment every month that may bleed your assets dry.

If you are sure that your budget can handle it, then build the extra bedroom or bath. Extra rooms raise the value of your estate as well as increase your general household environment. It may be a better idea to keep your home equity line of credit as a last resort safety net instead of gambling on a future that is uncertain.

 



JACK

Stephen Campbell asked:


A home-equity loan might be the right option on whether you need amount for college, home improvement, or even medical bill. This is a type of loan that uses home as a collateral and this can be classified into two categories: The closed end such a loan; and the open end home-equity loan.

Closed End Equity Loan- is like a traditional loan and this is also called as ‘second mortgage’. With this, the borrower receives the full amount loaned at the time of loan’s closing. It is paid back on monthly basis.

Open End Home-Equity Loan- it is a lot more flexible compared to closed end. Instead of acquiring the full amount loaned, the borrower gets a line of credit. The borrower can also choose when to borrow the money. This type of loan usually have a variable interest rate. The borrower can choose how much money to borrow against the home’s equity.

The basic concept of a home equity loan is that you can borrow against the current equity in your home, so the more equity you have the larger loan you can actually receive. In other words, to acquire an equity loan you are using your home as collateral, or the basis, for the such a loan. If you do not pay the equity-loan back, then your home is at stake and may be foreclosed upon. Therefore, it is important to understand more about this so that you are able to ride on the how this business flow.

You will need to know all of this concepts or information before you apply for a home equity loan to know if you have enough equity to even apply for a home equity-loan. In addition, the more you know about applying for and negotiating rates for a home-equity loan the better deal you will receive. Always put in mine, knowledge is power and the more home equity loan knowledge you have the more powerful you will be able to negotiate.

Home-equity-loan is searched well with online tool. Here you need to fill an online application form. Then you find number of lender approaches you with their loan quotes, repayable term, and rate of interest. It is the easiest and convenient method to reach your desired loan deal.

You can learn additional ideas on how to this business flow by visiting some websites. This is very useful if in case you want to engage in this business.



DARWIN