Home Equity Loans – second mortgage

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

Namsing Then asked:


This is a type of loan under which a property owner uses his residence as collateral security and can get prearranged amount against the property. The loan allows you to use into your home’s built-up equity.

Home equity is the actual difference between the amount your home could be sold for and the amount that you already owe on the mortgage. Assume that the market value of your home is $200,000 and you owe $70,000 on your mortgage, then you have $130,000 equity available on your home. Remember that if you have more than one mortgage taken on your property, then all of them have to be considered for calculating the outstanding dues.

A home-equity loan is a good way to borrow money for two main reasons:

1. The interest rate is one of the lowest loan rates a borrower can get.

2. The interest you pay on the loan is tax-deductible. Thus it is sometimes recommended by many to replace other consumer loans whose interest is not tax-deductible, such as auto loans, credit card debt, and medical debt with the Home Equity Loan.

Caution: If you don’t repay the debt, you can risk losing the home and be forced to move out. Do act with care and make sure you are able to fulfil the repayment terms.

There Are Two Types of Home Equity Loans

1.The standard home equity loan,

2.The home equity line of credit (HELOC’s)

In a standard home equity loan, a pre specified amount of money is loaned in a lump sum for a specified period of time and the same amount of interest is paid every month. It is also called a term loan, a closed-end loan or a second mortgage installment loan.

HELOC works similar to a credit card because it has a revolving balance. A HELOC allows you to borrow up to a certain fixed amount for a specified period of the loan which is set by the lender. During that time period, you can withdraw as much money as you need. As you clear the principal, you can use the credit again, like a credit card.

These loans are repaid in a shorter period of time than the first mortgages. They often have a repayment period of 5 to15 years.

The loan could be either a fixed interest rate or a variable interest rate.

Homeowners often use a home-equity loan for home improvements or debt consolidation or to pay for a new car or to finance their child’s college education.



GIL

MIKE SELVON asked:


Currently, the loan rates for refinancing a mortgage or taking out a home equity loan range in the area of 6.5 percent to 7.8 percent. While these rates are higher than just a year or two ago, they are still considerably lower than interest rates on credit cards and other consumer debt vehicles. Property values in most areas have risen substantially over the last several years, providing many homeowners with good equity, which they can now effectively use to take out a debt consolidation loan that will save them money every month.

A debt consolidation loan that is drawn again home equity is considered by many financial experts to be a shrewd and wise financial move on the part of homeowners. It allows the homeowner to transfer their high interest credit card debts, automobile loans, and other consumer loans to a much lower interest rate because the new loan will carry a much lower interest rate.

Homeowners can tap into the equity in their home by using one of three primary vehicles for an equity-secured debt consolidation loan. The can use their equity to get an equity line of credit, they can choose to take out a home equity loan, or they can simply refinance their existing mortgage. Each approach to borrowing against the equity has various benefits and considerations of which to be aware.

Some homeowners think that the simplest approach to doing a such a loan is to simply do a full refinance mortgage. In this scenario, they would borrow enough to cover the pay-off of their existing mortgage plus all of their other consumer debts.

The advantage of this approach is that it makes managing finances very simple, as all the debt payments would be reduced to one monthly mortgage payment. However, if interest rates on home mortgages have increased and are higher than the original mortgage, then this would not be the best approach.

If the existing mortgage loan rate is very attractive, then taking out a home equity one, or a second mortgage, would be a good way to handle the debt consolidation loan that is desired. The proceeds from the second mortgage home equity loan would be used to pay off other consumer debts and the multiple debt payments would be transformed into the one payment.

The third option is to apply for a home equity line of credit (HELOC) which provides the flexibility and convenience of drawing on the equity in the home. Once a HELOC is established, the homeowner can use the available funds at any time to pay off other debts, to finance vacations, college expenses, or anything else they choose, up to the limit of the available credit that is established based on the amount of home equity.

These loans combine the convenience of a revolving credit account with the low interest rates of home equity loans and can be a good way to manage debts and also be prepared for emergency expenses that every homeowner encounters from time to time. Most lenders provide the homeowners with debit cards and convenience checks to access their home equity line of credit.

Another reason financial experts point to in recommending doing a debt consolidation loan that is secured by equity in your home, is that the interest on equity loans is tax deductible, while the interest on other types of consumer debts is not. The deducibility does depend on how you handle the filing of your taxes, so you should consult a tax professional about this process.



EVERETTE

Albert Alexander asked:


Everyone wants to know the answer to the same question. So how much can I get? How much you can borrow is directly related to your equity which is simply estimated by subtracting the outstanding balance you owe on the home from the current market value. Equity simply refers to the cash value that has grown in your home while you have been making your monthly payments over time. Equity loans enable homeowners to borrow money against their home’s calculated value.

At the same time as home equity loans are a great approach to free up extra cash which is tied up in your home, borrowers must be fully aware that they are using their home as collateral. If a situation arises and their loan obligations aren’t met, they could lose their home. Historically, home equity loans were strictly used for home repairs that would increase the value of your home. Nonetheless, these loans have become a feasible selection for large, non-home improvement related purchases or even for consolidating outstanding debts into one monthly payment at an affordable interest rate.

These loans, secured by real estate, are generally considered safer by lenders. Because of this your interest rates are likely lower than credit card rates or consumer loans. In addition, regardless of the rate, the interest on debt secured by the mortgage or lien on your personal residence is commonly tax-deductible. Please consult your accountant for more detailed information.

Equity loans are great in that they use the collateral of your home to secure the loan, helping you to get a better rate out of the deal and make smaller payments than you would to a credit card or even on a personal loan. Home equity loans can be used for consolidating consumer debt or covering a large expense such as a wedding, college tuition, or home renovations to your existing home. Home equity loans are desirable to borrowers because they oftentimes have a lower interest rate, they are easier to qualify for even if you have bad credit and payments on a home equity loan may be tax deductible.

Even if most lenders feel comfortable with home equity lending, and may be more liberal because they view home equity loans as comparatively safe, it’s still a loan. Lenders consider many factors such as your credit history, ability to repay the loan, and your homes equity (noted above) when making a decision on how much money to lend. Home equity lending, often referred to as a second mortgage or borrowing against your existing home, can open up a lot of avenues as a funding source for a current homeowner.

Because they normally have a lower interest rate, are easier to qualify for (even with weak credit) and the interest may be tax deductible, home equity loans are a great alternative for individuals. Home equity loans are, when all’s said and done, fixed rate home loans that allow you to take advantage of the money you’ve already invested in your home to finance larger debts at a typically lower interest rate than most revolving credit choices.

Home equity loans are a great option if you are sure of your ability to pay them off. Like anything else however, buyer beware. Hidden fees and confusing rate calculations can make a bad situation get even worse. Less reputable lenders frequently target people in vulnerable circumstances with troubled credit by proposing what appears to be an easy way out.



SHELTON

Susan Jan asked:


Your home is your biggest asset. It does not just provide you shelter; it also comes to your aid when you are in financial distress. The equity of your home, built over the years, can be used to obtain loans by acting as the collateral. You can find two types of home equity debt, namely in the form of home equity loans and also in the form of home equity lines of credit otherwise known as HELOCs. Both of them are described as second mortgages, because just like the primary mortgage, the equity loan is also secured by your property. But unlike the first mortgage, the equity debt is repaid over a shorter span of time. The first mortgage is usually repaid over a span of 30 years, whereas the equity loan is usually paid within fifteen years. However, there are exceptions and the repayment period may be as short as 5 years and as long as 30 years.

The growing popularity of these type of loans generally coincides with the recent surge in property value and relatively lower rate of interest. Thus more and more homeowners are turning to these loans for managing their personal debts. Other advantages of the home equity loan also include lower interest rate and tax deductions, making this mode of debt even more popular.

So far as the equity rate of interest is concerned, it is slightly higher than the first mortgage, but considerably lower than credit card loans or other consumer loan interests. Because your property is used as the collateral in equity loans, lenders consider them as secure as the first mortgage.

The tax deduction feature may be the biggest reason behind the huge popularity of home equity loans. Mortgage debt comes with attractive tax savings compared to lets say consumer loans, thus it is highly cost effective to consolidate your other debts with this loan and enjoy lower interest rate plus tax deduction benefits at the same time.

With these benefits, namely considerably low rates for equity debt and tax deduction on the interest payments, it is no wonder that a number of homeowners are utilizing the equity of their homes to meet further expenses and debts. True, it is a mortgage on your precious home, but if you are able to pay back the entire amount within a short span of time and you have stable income, home equity loan is a good option for much needed credit.



STEVIE

Renold asked:


Hi all,

I want to share some information with you regarding the benifits of colorado home equity loans.

Home equity loans are considered secured loans. A Colorado home equity loan will both allow you to access your home’s equity as a owner. A Home Equity Loan has become an increasingly popular way for consumers to borrow money, especially with the continued increases in interest rates on credit cards. A home equity loan is a type of loan in which the borrower uses the equity in his home as collateral. Colorado home equity loans are also called as second mortgage loans. To get a Colorado Home Equity Loan The interest on a second mortgage is usually tax deductible and also payment schedule can be arranged over a specific amount of time, which allows the home owner the convenience of scheduled payments. If you have a great mortgage interest rate and don’t want to refinance your existing mortgage, a home equity loan might be the way to go.

A home equity loan is a second loan that you take out in addition to your first mortgage . It allows you to get cash from your home’s equity. These loans are sometimes useful for families to help finance major home repairs, medical bills or college educations. Colorado Home equity loans offer several advantages. Interest rates tend to be lower over other types of consumer loans. For more information on Colorado Home Equity Loans . Your home equity is the percentage of the home that you own. Equity means the difference between the current value of the home and the amount you still owe on your mortgage. you can borrow money against that equity in the form of a second mortgage or home equity loan. Home equity loans come in two types, closed end and open end.Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Banks and other mortgage lenders generally like issuing home equity loans. For most people, their home is their biggest single asset. The borrower benefits from the lower interest rates offered with “safer” loans.

Compare the interest rates from different mortgage lenders and make a decision. So many lenders will approach you but try to get a loan from a reliable mortgage company which will offer you the lowest Colorado home equity loan rates. Colorado Home Equity Loans are most commonly second mortgage loans, although they can be held in first position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. In the United States, it is sometimes possible to deduct home equity loan interest on one’s personal income taxes.



EMANUEL

Andrew Bicknell asked:


One of the best ways to pay off debt is getting a home equity loan or 2nd mortgage which will allow you to consolidate all your debts into one monthly payment. The majority of consumers in this country are over burdened with credit card debt, consumer loans, car loans and other financed items. Paying off all that debt can take time and patience. A good first step is consolidating all those bills into one more manageable loan.

If you are new to debt consolidation you may be asking how does a debt consolidation home equity loan work?

The idea behind this type of loan is really quite simple. The equity in your home is the difference between how much it is worth and how much you still owe on your mortgage. Aside from your credit score the amount of equity in the home will determine whether or not you will qualify. It is important to remember that a debt consolidation loan is not free money but because it usually comes with a lower interest rate it is easier on the budget and easier to pay off.

Before you decide on go out and get this type of loan it might be worth looking at some of the benefits it can bring.

The big benefit of getting a debt consolidation home equity loan is the easing of the debt burden. But there is a catch that you have to watch out for. Once you have used the equity in your home to pay off debts it is vitally important that your cease to use any and all credit cards and do not start financing new purchases. Not doing this can lead many people right back into an even bigger debt problem with the added threat of losing their home that was used as collateral.

Another benefit of getting a home equity loan is the interest paid is deductible on your yearly income taxes. While not quite as rewarding as having no debt being able to recoup some of the cost of the interest on your loan can make life a little easier. Aside from mortgages and home equity loans other debts such as credit card interest, car loans, payday loans and others are not tax deductible.

A home equity loan or line of credit can be a way for many people swamped in debt to gain some financial breathing room. These loans are not an instant fix, but rather a way to move all debts into one easy to deal with payment with a lower interest rate. It can be a good first step on the road to a debt free life. But this route to financial freedom will only work if you stay away from credit cards and work a budget that will get you on the road to building wealth.



ABRAHAM

Sachin A asked:


Home equity loans have become one of the most popular fund raising options for individuals.

Home equity loans are the loans taken using your home’s equity as the collateral. Thus they are a type of secured loan.

These loans are based on two facts – first, that you have repaid a certain portion of the home mortgage and thus should be able to reutilize that equity; and second that the value of your home has increased since you first purchased it.

The common reasons for taking an equity loan are home improvements, educational expenses, medical bills, debt consolidation etc. There are usually no restrictions on how the borrowed money is used.

The interest paid on such loans is usually tax deductible. Also the interest rates on them are lower than credit card other type of consumer loans. (They are higher than the first mortgage.)

Let’s understand what “home equity” is.

Home equity is defined as the difference between the market value of your home and how much you owe on the mortgage (or mortgages in case you have more than one.)

The market value of your home will be determined by bank’s appraiser or a licensed appraiser.

Suppose market value of your home is $ 100,000 and you have made a down payment of $ 10,000.

Then your equity

= market value – amount owed

= $ 100,000 – $ 90,000

= $ 10,000

After three years if you have paid back $15,000 more of the debt, you will still have $75,000 of the debt left. However after three years the market value of your home would have increased to $ 150,000.

Thus your equity after three years would be

Market value – amount owed

=$ 150,000 – $ 75,000

=$ 75,000

Besides home equity loans (fixed rate home equity loans), there is another type of home equity debt – home equity line of credit or HELOC.

Both of them are known as “Second Mortgages” as they are secured by your home just like the first mortgage.

“Second Mortgages” are repaid sooner than the first mortgages, which are usually repaid in thirty years. Home equity loans usually have a time frame of five to fifteen years.

Home equity loans are a one time lump sum loans, that are repaid over a time period decided beforehand.

On the other hand, home equity line of credit or HELOC allows you to borrow up to a certain limit for the period of the loan. The time limit of the loan is set by the lender. You can withdraw money any time during the time period and repay it any time. It works the same way like a secured credit card.

A HELOC has a variable interest rate that varies through out the period of the loan. The HELOC interest rate depends on the prime lending rate (prime lending rates are fixed by the federal reserve in the US.) The payments can vary depending on what is the amount that has been borrowed, the interest rates and whether the loan is in the draw period or the repayment period.

The credit rating of the borrower is also a factor in deciding the home equity loan interest rates.

The draw period of the line of credit is the period during which you can borrow any amount up to the limit specified by the lender. Also only the interest has to be paid during this period; however you may choose to repay the principal amount if you wish.

During the repayment period, no new debt can be taken and the existing debt must be paid back.

Usually draw periods are for ten years and repayment periods around fifteen years, but this varies depending on the lender’s policies.

Withdrawals for HELOC can be done by checks, credit cards or EFT. Lenders may have certain terms which make require you to take an initial advance when the HELOC is setup, borrow a minimum amount each time you use it and keep a minimum outstanding balance.

If you decide to sell off your home, you have to pay back full amount of the home equity loan.



LUIS