Home Equity Loans – second mortgage

Nicholas W Partridge asked:




Home equity loans are a type of loan in which the borrower uses their own home’s equity as collateral. These loans are very useful for financing big expenses, such as education, medical bills or repairs to your home. It creates what is called a lien against the borrowers home, and therefore reduces the actual equity of the home.

Most home equity loans require a very good to excellent credit history and a reasonable loan-to-value ratio. In some areas, these loans are referred to as second mortgages.

Many people get confused between these loans and the home equity line of credit, the difference being that a line of credit can be drawn upon for funds at any time and often comes with an adjustable interest rate, whereas a house equity loan is a one time fixed lump-sum, usually with a fixed interest rate.

As for whether or not this type of loan is suitable for you really depends on your circumstances. If you have a lot of equity built up in your home and you’d like to release some of it, then using your equity is probably a good option. Just be aware that banks view these loans as slightly more risky than other types of loans, and will therefore charge a higher interest rate. It’s generally advised to use the funds for major necessities only, as opposed to things like holidays or boats.

Conclusion

Home Equity Loans are great for those of us who have nearly paid off their homes and are looking for quick funds to renovate the home, pay off some medical bills or other larger expenses.

Antonio

Arturo Ronzon asked:




There are many issues involved with the application for a loan and also the approval of loans, there are also different kinds of loans available. The home equity loan is one of the different kinds of loans which involve the using of the home’s equity to get desired funds to meet the needs of the borrower. The lender gives out money to gain more money in return, and the best avenue for the lender to gain is through the interest rate attached to the loan, this is negotiable between the lender and borrower and an agreement is reached. The loan can be a fixed or variable interest home equity loan; this goes a long way to determine the other factors affecting the loan.

The variable or adjustable interest rate home equity loan is another type of home equity loan, this means that the interest rate is not stable and is subject to change at any time throughout the life of the loan. In this kind of situation the amount given is between the ranges of 80 – 100 percent of the equity of your home. This means that if the amount invested in your home is one hundred thousand dollars, the amount of the home equity loan will vary between eighty to a hundred thousand dollars. It should be noted here that the money is divided into different small installment, unlike the case of the fixed rate.

Most times, the adjustable interest rate home equity loan is more expensive to pay back than the fixed rate loans. This is because the interest rate is ever changing, most lenders utilize this opportunity to always hike the interest rates of loans offered; making it difficult for borrowers to actually determine what the monthly pay backs will be like, and with this you will end up paying more. In fact the total amount of payback cannot be determined at the beginning, making it impossible to plan.

Comparing the fixed interest with the variable/adjustable interest rate home equity loan, it will be discovered that the fixed rate is better since it enables one to budget, planning the loan repayment well since there is a knowledge of the total amount of payback, unlike the variable rates that makes it hard to plan because there is no definite total payback amount. But, with the variable rate loan, one can collect money at different times in small installments making one able to spend the money of the loan well, since the amount is used bit by bit to actualize the borrower’s desire.

Clifford

Rick Swanson asked:




When applying for a home equity loan, keep in mind that like most loans, there are always a host of fees. Usually the interest rates for this type of loan are much lower than those of a credit card which is a plus but be sure you understand all costs that will be associated with the loan before you sign on the line.

The main cost to consider is the interest rate. Different types of home equity loans come with different types interest rates. If you are getting a closed home equity loan, which is a single loan, it traditionally will have a fixed interest rate. If you are considering a home equity line of credit, know that it usually will have a variable interest rate. The two types of loans are quite different so expect a discrepancy in the rate of interest for each.

With the home equity line of credit, often every time you borrow from that line, you may be asked to pay a transaction fee. But with all fees, it never hurts to ask for them to be waived or reduced. Often lenders waive certain fees as an incentive to use their company. So do your research!

Both of these loans are treated much like a mortgage. So like your initial home loan, expect that you will have closing costs, attorney fees (if they prepare the legal documents) and insurance fees to pay. You’ll more than likely also encounter an appraisal fee. It’s usually required to have an official home value established before the loan amount can be properly determined. Just keep these all in mind when deciding on whether or not getting a home equity loan is right for you.

Unfortunately, fees are a necessary evil when it comes to getting any type of loan so be prepared to analyze the whole picture. There’s always more to consider than just your monthly payment. And since it’s your home you are putting on the line, it’s so important to understand every fee that will ultimately be associated with the loan. There are so many options out there for home owners. Just be a savvy consumer and get all the information before committing to anything.

Marie

Derek Farley asked:




A home equity loan is a loan that is secured by the equity of the borrower’s home. Because the borrower’s home is used as security, the lender will usually offer an interest rate that is lower than it would be for an unsecured loan. The most common reasons for getting a home equity loan are paying for home improvements, paying off other debts that have a higher rate of interest, and paying for other expensive items such as a college education or medical bills.

A borrower should only seek a home equity loan if they are sure that they can repay it. If the borrower defaults then the lender could foreclose on the borrower’s home and sell it to recover their losses. A borrower must have equity in their home before applying. If the borrower’s home is worth less than the balance on their current mortgage(s) then there is no equity to borrow against.

There are two types of home equity loans – a closed end, and a line of credit. A closed end home equity loan is a lump sum that is repaid in monthly payments over five or ten years, and usually has a fixed interest rate. If the rate is fixed then it is easy to create a loan amortization schedule that shows the balance remaining on the loan after each payment. Variable rates are uncommon for this type of loan because the payments are fixed, so a change in the interest rate might mean that the payments are no longer enough to cover the interest expense. This would lead to a negative amortization, where the unpaid interest is added to the balance.

A home equity line of credit works like a giant credit card, except that there are minimum withdrawal amounts as well as fees for each withdrawal. The interest rate on this type is usually variable. Therefore, the monthly payment amount will change depending on the current interest rate and the current loan balance.

Currently, home equity loans are difficult to get unless the borrower has excellent credit and a lot of equity in their home. This is because the home equity loan will be in second position behind the first mortgage, which makes it difficult for a lender to recover any money if the borrower defaults. However, it is much easier to get if the borrower does not have a first mortgage because the equity loan would then be in first position. In that situation a borrower may find it easier to get than a traditional mortgage.

There is also a tax advantage to getting a home equity loan. The interest is usually tax deductible if the borrower’s primary residence is the home offered as security. The borrower should check the tax code or ask a tax professional for advice if they want to take advantage of this tax deduction.

Hazel

Maria Mbura asked:




It’s very simple. Home equity loan is a loan that you take from a financial institution and the money is borrowed using your house as collateral. Your home is the security against which the money is lent to you. The equity will be the difference between the market value of the house minus any outstanding debt, mortgage or loans against the property. That is the amount that can be borrowed. It is for this reason these loans are commonly referred to as second mortgages.

The amount borrowed can be charged a fixed or variable rate of interest. One of the benefits of home equity loan is the interest you pay is tax deductible at the end of the year when you file your tax returns.

Home equity loan is often used for purposes like debt consolidation purposes whereby you pay off high interest rates personal loans like credit card debt, medical debt, or education loans. It is also popular for home improvement financing.

There may be a number of ways of availing this kind of a loan. But the net result is always productive as you get a lump sum which attracts a fixed interest rate with fixed monthly repayments. The low monthly payments and affordable interest rates make it very popular.

Home Equity Loans are absolutely attractive mortgage agreements and because of their capability not only to operate as a safety net, they have seen an increase with many homeowners taking up these loans.

Finally it is wise to remember that your home is the collateral which means, in case you are unable to pay the loan you stand to have the house sold by the lender. So it is important to make your repayments constant and timely.

If you are looking for home improvement financing then understanding how a home equity loan works is crucial in helping you decide if this is the type of loan you should get.

Michael

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

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 it comes time to get the money you need to renovate your home, you have some choices to make concerning the financing of it. Both ways, either refinancing your first mortgage, or a home equity loan, will give you access to your equity. After that, though, a number of differences will clearly stand out. Here is what you need to know about these differences so you can intelligently choose the best one for your needs.

Features Of Refinancing Your First Mortgage

By getting a cash out mortgage, you can replace your first mortgage and obtain your equity. This means that you will have to pay the fees again that you paid when you bought the house in the first place. However, if you wait until the interest rates are down, you can get a better deal than you had before. The amount that you can gain could easily offset the costs of refinancing and save you thousands of dollars over the life of the new mortgage.

The interest rate for a first mortgage is always lower than what you would get for a second mortgage – which makes this the ideal choice. You also will have only one payment each month, which you could even make lower than what you have now by extending the time length on the mortgage. If you already have more than one mortgage, then this is also a good way to consolidate them and get your equity at the same time, as well as reduce your monthly payment.

If you currently have an adjustable rate mortgage that is about to run out of the fixed rate portion, then this should be the way you would want to go. Not only will it give you level payments with a fixed interest rate, assuming you get a fixed rate mortgage, but also your equity for the upcoming renovation project you have in mind. This means you could take care of more than one problem at once.

Features Of A Home Equity Loan

A home equity loan is considered a second mortgage. This means it will give you an additional payment each month. If you can afford the extra payment, this may be the way you want to go. It will also have a higher rate of interest than a first mortgage, and usually has a time frame of up to 15 years for repayment.

You can take out your equity but need to leave enough in there that is equal to 20% of the value of the house. This is true with any kind of mortgage, since you may need to pay private mortgage insurance if you go over this amount.

A home equity loan is mostly fixed rate, but some may also be adjustable. Your loan payments are fully amortizing, and money used for fixing up your home is often tax deductible. This type of loan is seeing some new variations come out recently, so you will want to see what is out there before you choose.

The Choice Is Yours

Obviously, only one of these choices will best meet your needs. After you choose a course to take, you will then want to get a few quotes – whether you choose to refinance, or get a home equity loan. You will need to look them over carefully and consider all aspects in order to find the one that is best for you.



PARKER

Yoni Daniel asked:


A second mortgage simply means that the amount you borrow is secured by your property, in second preference to your first mortgage. Some lenders call it secured loan. 2nd mortgage loans are loans that are made in addition to the first mortgage, and it is usually based on the amount of equity that the borrower uses to build into his home.

Second mortgage used to be hard to get up until a few years ago, lenders had decreased the amounts and limited the situations that enabled you to purchase 2nd mortgages, the situation now is different. There are now a wide selection of loans available to meet your needs, and it’s much simpler to get a second mortgage on your home.

Second Mortgage and Home Equity Loan.

The amount you can borrow is depends on the difference between the value of the property and the amount of your first mortgage. Better known as the equity you have on your property.

There are two types of second mortgages:

1. Home equity loans.

2. Home equity lines of credit.

Home equity loan is a loan in which the borrower uses the equity in his home as assurance. Home equity loans are a lump sum loan with a fixed interest rate and a planned payment. The amount of loan is determined by credit history, income, and the value of the collateral. People with poor credit can get bad credit personal loan or bad credit home equity loan, but they pay a very high interest rate.

The home equity line of credit is a tool used by homeowners who need to borrow against the equity in their home. There are several different types of home equity lines of credit. These differences are generally based on the interest rate charged the homeowner.

Home equity line of credit is similar to a credit card, you don’t get the money in one lump sum, what you get is a line of credit to use it when you need it. Line of credit will have a variable interest rate, the homeowner cannot know what the interest payment will be. The interest rate on the loan will vary to the same degree as the interest rate set by the Federal Reserve Board

Second Mortgage Interest Rate:

The are two types of mortgage loans: fixed rate mortgage, and adjustable rate mortgage(ARM).

In a fixed rate mortgage,the interest rate remains fixed for the life of the loan. The borrower is protected from sudden increases in monthly payments if interest rates grow. Borrowers choose fixed rate mortgage when interest rates are low.

In a adjustable rate mortgage(ARM),the interest rate may change during the life of the loan.

If you intend to live in your home more than just few years and you like the financial stability of a fixed payment, Than fixed rate mortgage is the right loan for you.

But, If you Plan to briefly remains in your home, Don’t afraid from monthly payment change, And you firm your income will increase in the future, Than adjustable rate mortgage is the right loas for you.

Adjustable rate loans have cleverly protected borrowers money in recent years.

According the msn money expert fixed-rate mortgage are much higher than the Adjustable Rate Mortgages.

The second mortgage interest rate are a bit higher than 1st mortgage rate. But the interest paid on the second mortgage may be tax deductible. In most cases the accumulated interest is 100% fully deductible as long as the combined loan to value of the first and second mortgage does not exceed the price of the home.

Borrowing more than 80% of the home’s value will subject the borrower to private mortgage insurance. The monthly payments should also be a determining factor. If one refinances in the future, he will have to pay off the 2nd mortgage.

The amount borrowed will be combined with the amount the borrower still owes on his first mortgage. But first of all, one should not take a second mortgage on his home unless one has arranged payments on the primary mortgage balance for a good amount of time. One may be able to get a second mortgage if one does not have much equity, but then the loan rates will be much higher, and the amount will be much lower.

While acquiring a second mortgage loan the lender places a lien on the borrowers house. This lien will be recorded in second position after the primary or first mortgage lender’s lien, hence the current term second mortgage. Typically the terms of the loans are for 5, 10 or 15 years, which means that you can choose monthly repayment in accordance with your circumstances.

Debt Consolidation, Home Improvements

Since the loan is secured the interest charged is very competitive compared to other loans, especially credit card loans. Generally, there are no restrictions on the way you use the money. You are free to use it as you please, from debt consolidation to home improvements, from college education to buy a second home or even a dream holiday, a second mortgage loan can be used for just about anything.

Usually, lenders are eager to lend money to home owners because the loan is secured and the borrower has already passed a stringent credit worthiness when he applied for the first mortgage.

One more things, freedom and speed. Second mortgage put you in the driving seat and in charge of your own finance affairs in the fastest way possible. Come on, you can do it.



LARRY

Alan Lim asked:


Known also as a second mortgage, a home equity loan basically allows homeowners to get some cash by leveraging on their home equity. By second mortgage this means that you are replacing your existing loan and secure it by the same asset which, in this case, is your home.

Home equity loan refinancing may be considered risky for some. It does take some risk, considering how you are borrowing against your home. However, if you plan it out well and go for the right timing, it may solve a wide range of your financial problems.

Home equity loan and Line of credit

As far as equity loans are concerned, you can choose from getting a second mortgage or a line of credit. The choice will depend on how you plan to use your money and what your goals are. The former offers you a lump sum with fixed interest that you can repay in installments of 10 to 20 years. This can prove excellent for single large expenses such as home renovation. Line of credit, on the other hand, is virtually like a credit card where you are pre-approved of a certain spending limit and you can withdraw cash at anytime and be imposed of the current interest rate.

A home equity loan is undeniably an easy source of cash for homeowners. Interest rates on home equity may not always be as low as that of your first mortgage, but they are usually only half as much as that charged on your credit card or personal loan. Consolidating your debts via home equity will give you some extra savings on hand. You can even collect what you save up monthly to pay part of your principal to lessen your mortgage burden. Equity mortgages are also convenient since you only need to make one payment every month. You save time, and you save yourself the worry of meeting due dates.

Another attractive benefit that you can get out of a home equity loan is based on that fact that this type of loan is tax deductible. Many people go for equity mortgage to pay for major purchases, trips and other consumer goods for its tax deductibility.

Getting a home equity loan should not be taken as an easy way out for those who have fallen into the cycle of spending and borrowing – those that make holes for themselves to go deeper into debt. Though attractive as a concept, an equity mortgage should only be done for the right reasons. Though a home equity tool can equip you of a great tool for financial stability, know that it also carries a lot of risks with it. As in all mortgages with homes as collateral, you may run the risk of losing your greatest asset if you do not manage your debt properly. Take note that some terms require you to pay lump sum or balloon payments towards the end of your mortgage term. Do not fall into the lure of easy money with equity loans, weigh things beforehand and plan accordingly.



NORMAND