Home Equity Loans – second mortgage

Carrie Reeder asked:




A home equity loan makes it possible for homeowners to gain access to their home’s equity without selling the property. Traditionally, homeowners would have to sell their primary residence in order to access the equity. The money could be used as down payment on a new residence, or used to payoff debts. Fortunately, moving is no longer the only option for tapping into one’s equity.

How is Home Equity Gained?

A home’s equity is the difference between the mortgage amount owed and the market value of a property. Homes and properties gain equity in one of two ways. For starters, as homeowners submit mortgage payments, the overall balance on their mortgage loan is reduced. Secondly, homes acquire equity as a result of rising home values. Within the past two to three years, many housing markets across the nation have witnessed phenomenal housing increases. For this matter, many homeowners have acquired unbelievable equity amounts in a short period.

Purpose of Home Equity Loans

Each homeowner’s reason for acquiring a home equity loan will vary. Common reasons include using the money to eliminate high interest debts. Many people set a goal of becoming debt free. However, due to high finance fees on credit cards, reducing the balance is extremely difficult. In most cases, a lump sum of money is required. Home equity loans provide the required cash.

Additionally, home equity loans are perfect for upgrading or making improvements to a real estate property. Other reasons may include building a cash reserve, starting a business, or paying for a child’s education expense.

Interest Rates on a Home Equity Loan

The most appealing feature of home equity loans are the low rates. Granted, the rate paid on an equity loan will be slightly higher than a first mortgage. Nevertheless, the interest rate is dramatically less than those for credit cards and other loans. Furthermore, home equity loans have short, fixed terms. If using the loan to consolidate debts, homeowners receive an estimated payoff time for their debts. On average, home equity loans can be repaid in as little as three to seven years. Here is a list of recommended Home Equity Lender online. It’s important to use a reputable lender online to make sure your personal information is secure.

Elizabeth

Sean Bailey asked:




You may know that a home equity loan is the possible answer if you urgently need cash. But are you aware too that this type of loan carries with it the danger of losing your home? Since your home is used as collateral, non-repayment of the home equity loan could mean foreclosure of your home. It is therefore necessary to have a deeper understanding on how does a home equity loan work. As mentioned before, if you take this type of loan you will use your home as collateral. What then is home equity? Let’s say you have purchased a house several years ago for a specified amount. Over the years you have made changes…you may have renovated the house; you may have added a wing or two. These changes have increased the market value of the house. The value that goes with the house is the home equity. Now, if you take out a home equity loan, you are in effect “using” your own money. It becomes a loan because it entails interest rates to be charged, monthly repayments to be paid in a specified period of time.

Basically, this type of loan would have a fixed loan term, a fixed interest rate as well as a fixed monthly payment. However, there is another type of home equity loan that has variable interest rates, monthly payments and terms – the home equity line of credit. Unlike the former type of home loan where the loan proceed is given in one lump sum amount, home equity line of credit can be withdrawn by the borrower as the need arises. Monthly payment varies as it would depend on the amount of money withdrawn.

One advantage of taking a home equity loan is the relatively low interest rates. The borrower is afforded savings opportunities because payment for this loan is tax deductible and interest rates can be written off from the taxes he/she has to pay. These type of loans are taken for a variety of reasons. The proceeds may be used to pay off credit cards with high rates of interests; it can also be used to infuse capital on a business.

If you have a good credit history and you have all the necessary documents, your loan will be approved in no time. The cash you urgently need will be in your hands but there is an important consideration you need to remember, your home ownership is at stake here. Non-payment of the loan could mean foreclosure of your home. As you can see, it is not as straight forward as you would like to think it is. I hope the article has given you some insights on how does a home equity loan work.

Bradley

Acanthus489 asked:

DEBT CONSOLIDATION LOANS Bad Credit Debt Consolidation Bills and debts getting a little out of hand? Lower your monthly payments by consolidating them into one low payment. You can consolidate anything. Credit cards, car loans, personal loans, second mortgages anything and everything! We…

Brenda

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

Nadia asked:


We currently have a 1st mortgage with Resmor. We would like to renovate (and insulate) our second floor not only to accomodate heating costs but to bring in a boarder to help offset our costs. We need about $15K. Our finances haven’t been the best in the past but we’ve worked hard to increase our credit score, paying on time and is much better now.

Is it best to approach our bank for a home improvement loan? If one turns us down, should we continue looking? Should we bring a recent credit report and show how we intend to pay it?

Our equity doesn’t give us enough to do this and we prefer not to use our credit cards because of higher interest.

Once we’ve raised the value of our home, would this be a good time to put this loan onto a second mortgage? A mortgage broker has offered to do a 2nd mortgage with us. I get so confused with ALL these people who want our money. Help!

WYATT

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

Gerald Greene asked:


Over the past few years many Americans have established lines of credit secured by the equity in their homes or have borrowed a lum sum amount secured by their home. For marginal borrowers this can turn out to be highly risky as it exposes these families to the loss of their homes.

Lenders tend to quickly change colors from friend to foe in times of financial crisis and will “take it away if you can’t pay”.

Prior to mortgaging or refinancing a home you should consider what your families finances would look like if one or more of your family members living in the home lost their job or came down with a serious illness.

How long could you keep the home payments current if there was an unfortunate long term loss of family income?

In spite of the dangers of refinancing or taking out a home equity loan there are times when it may in fact be wise.

Perhaps credit card debt has gotten out of hand. You can get a home equity loan at much lower rates, pay off the credit card debt, and lower your monthly payments, perhaps as much as by 50%.

A word of warning, however. You must not run up your credit card balances once again or you will end up in even worse financial shape than you were to begin with. The second time around trying to carry high credit card debt and a home equity loan payment may be more than painful. It may be financially fatal.

It would be far safer to avoid temptation by cutting up your credit cards and using a debit card instead.

There are other occassions when a home equity loan may be justified. Perhaps you wish to start your own business and are willing and able to take the risk that things may not work out as you plan.

Your home equity will likely be the cheapest source of start up capital that you will find other than going hat in hand to family members. For most families a “friendly” family loan is not recommended as the resulting strife that often takes place if things don’t go as planned causes painful family problems.

Even when all does go well you may get tired of listening to advice from your unofficial business partners.

Perhaps you wish to purchase an existing business, one that should earn you a good income for a long time to come. Again your cheapest source of capital would likely be a home equity loan.

In general, one should consider a home equity loan when the loan proceeds are used to very likely improve ones financial position. This would be a wise use of the loan proceeds.

One should use extreme caution in using a home equity loan to purchase additional consumer goods, say a large expensive flat screen TV set or a new SUV.

The worst example of the use of a home equity loan that I know of was a couple who took out a loan in order to go to the Superbowl. Just think of how much that Superbowl trip will really cost over the years as interest payments are added in. What a terrible short sighted financial decision.

My advice. Use a home equity loan only to improve your financial position or to raise funds in a true emergency situation. Using a home equity loan to purchase things that will only lose value is a misuse of the loan proceeds that could cost you what is probably your most useful and valuable possession … your home sweet home.



TIMMY

Joseph Kenny asked:


Preparing your home for sale in the near future may mean that you need to fix the place up before you sell it. If you have some major work that needs to be done to it, you may want to consider getting a home equity loan to pay for it. Here are some reasons why a home equity loan is a good option to get the money you need to fix it up.

Lower Cost

A home equity loan allows you to tap into the equity in your home. It is also looked at as a second mortgage and will provide you the funds you need to complete your home’s preparation for sale. Getting a loan this way provides you with a lower interest rate than most other type of loans, or credit cards.

Get As Much As You Need

Before you set out to get your money, you will need to know how much you want to get. Even before you do that, though, it would be a good idea to find out if the project you have in mind will actually increase the value of your home. If you are looking to raise the value of your home, talk with a Realtor or contractor beforehand, because some projects simply will not raise the value very much.

A home equity loan provides you with a one-time amount, so you will need to know what it will cost beforehand. If you are not sure of the cost, perhaps a home equity line of credit may be the better way to go for you. This will give you a line of credit, and access to it so that you can draw out money, as you need it.

Fixed Interest Rate

A home equity loan will usually have a fixed interest rate. This allows you to know exactly what your payment will be from the start. Since you are planning on selling your home as soon as possible, you want to keep your payments as low as possible. You will want to keep in mind, though, that a second mortgage does mean an additional payment – at least until sold.

Keep Payments Low

With a home equity loan, you are able to get low payment terms that will not fully amortize the loan. This usually requires a balloon payment at the end of the loan in order to fully amortize it. Since you are only borrowing the money for a short term, though, this would enable you to pay the least amount until your house sells. Then you can make your payment in full.

Make sure, though, that there are not any early payoff penalties on your home equity loan. This will allow you to pay the least and get the most for the short term. You also want to get a few quotes for your home equity loan and look around for the best deal. Compare the various offers you receive and find out which one will work best for your situation.



GARRY

Daryl Stewart asked:


Have you ever faced in an economic problem before where you spent over your limit on your credit cards, even reached the credit limit or may have had the card declined and then fright or felt uncomfortable and then right away done something about it to pay down the card?

Negative Equity is a situation where your home is worth less than what you are in debt on your credit. For example if you be in debt $500,000 on your mortgage and your home is worth $385,000, your negative equity is $115,000.

A home equity loan, however, is truly a loan taken out touching your own home. This means that your home itself is the instrument that secures the loan. Now your house has become the guarantee that you will have to keep on paying your loan. If you Stop payments for any reason – than may be you will lose it. A wise use of your home’s equity, though, is to leave it right where it is – building up even more equity that come will come in real handy when you sell it.

Sometimes you find yourself with negative equity and than no one plans for negative equity but often it is inevitable. The many problems overcome in front of us. Now the question is that how do you overcome these problems?

There are many helpful points by which you can handle situations:

• Please try to write everything on paper or other.

• Always talk with senior who is master in that particular area.

• In some situation make an offer so that customer can attract.

First of all we should know that what is home equity loan? A home equity loan is naturally a second credit. As such, it has a higher interest rate than a first advance, and a shorter time period to pay it back – up to 15 years.

It can be used for any purpose. There are so many advantage of home equity loan. It has bets value when you are going to get your home improvement or renewal. As well to add the price of your home, the portion used for your home improvement is usually tax removable, too. This brings down the interest rate more when used for this purpose.

A home equity loan can also be gained in two another ways. You can obtain them either as modifiable rate credit, or as a fixed rate credit. This makes it most suitable for us based on the wealth and your situation.

There are some better terms threw which you can get it easily. Lenders found their financial result largely on your credit score. You need to get a copy of your credit report Also, if you decrease your debt earlier and make corrections on your credit report, it can help you to catch a better interest rate and other more suitable terms.



CLEO

Jim Wilson asked:


With the many loan options around today, you most likely want to hear how second mortgage loans compare. This report presents a number of great tips and constructive hints as it relates to why using a second mortgage is the perfect way to get your hands on some much needed cash.

Each time you set up a second loan, your house is used for collateral to give security to the lender. Second mortgage equity loans are arranged to provide lump sums of cash to the homebuyer, which you repay on a set arrangement. The cash could then be used for most any function; though, it is recommended to pay off debts, instead of spending like mad. The loans might be utilized to pay off school fees, which is a wonderful idea, given that the loans for college tuition could lead to problems. Otherwise, if you establish a second mortgage equity loan, you may want to renovate your home or beautify your house for increased equity.

Loans are alternatives for everybody, but if you have credit issues, then the second mortgage equity loan may be in your best interest. House equity loans are designed to offer higher rates, because it is a second loan; although, the rates are factored by the secured interest rates on credit cards and other loans. Stated in other words, you are getting a loan to pay out the higher interest rates on credit cards, car loans, or other secured loans and paying new interest on the current loan.

If you have debts, a second loan can be useful. Many lenders will offer wonderful repayment rates on secondary loans. Lets say, if you established a loan contract for $10,000 in credit card debt at 14%, then a secondary loan repayment would be $278.

Compare with using a 2nd mortgage. If a customer takes out a secondary loan of 16% on a home equity loan over a fifteen-year term then the repayments would be around $135. Thus, you can see second mortgage equity may well be of value.

If you want to hear more with regards to how equity loans can help you for your circumstances, a little internet browsing research will definitely help. You can visit our site below. There are tons of companies that present second mortgages, so you’ll have a colossal selection to choose from when you’re equipped to make your final decision.



ISSAC