Home Equity Loans – second mortgage

Brandon Baarz asked:




There are many advertisements out there regarding home equity credit loans. We are barraged with television ads, billboards, radio spots and direct mail- I received three last week. Many wonder if home equity credit loans are a good idea. There are some things to think about before making this decision.

You can make the necessary payments- as with any loan, financial discipline is very important. This is even more so because a home equity loan acts as a second mortgage. Essentially, you are using your home as collateral, making it vital to make necessary payments. Because the lender has your home to back the loan, this gives you the opportunity to borrow at a much more favorable interest rate. The most attractive aspect of a home equity loan is that you can consolidate higher interest credit lines or loans. This gives you the option to use the extra income for your everyday needs, or pay off debt much faster.

You are making a major purchase or home repairs- we often do not have the money to buy larger items, therefore they need to be financed. A loan using the equity in your home can give you the lowest finance charge, as well as more favorable or flexible terms. Home repairs are part of home ownership, and very few owners have adequate savings to take care of them. Home equity loans are a good way to pay for these expenses, as cheaply as possible.

Do not use a home equity credit loan to supplement day-to-day spending, or on frivolous purchases. If you look at a home equity loan as permanent debt, you will keep digging yourself further into debt, often to the point of bankruptcy. You don’t want to put your home at risk. Also, if you know a major purchase or home repairs are imminent, it is a good idea to save the loan for those purposes. Basically, be smart with the money you borrow. We can get trapped by the low interest rate and feel we will be paying it off quickly and easily. Home equity loans are good tools for financial stability, if you use it wisely!

Benjamin

Connie Barker asked:




Using your home equity is a very savvy way to borrow large sums of money at a very low cost. While there are different types of loan products that lenders offer, the two most common and popular are the home equity loan and home equity credit line.

Before jumping into these two types of loan products, it is important to understand the nature of these two types of lending. Two terms that are extremely important are equity and collateral. Equity is a term that is used to describe the difference between the current appraised value of your home and the amount of the money that you owe (mortgage). For instance, if your home is currently valued at $300,000 and you own $100,000, your equity is equal to $200,000.

Collateral is another term that you should be aware of, whether in home equity loans or a home equity line of credit, it is important to note that you are putting up your home as collateral. Collateral is a way to secure your loan. If you are unable to repay your loan, the bank uses your home as collateral and can sell it to recoup its losses.

The main difference between these two different types of lending is that home equity loans are a one time loan for large sum of money. A home equity line of credit is an open account similar to a credit card where you can borrow money at various installments. Another important difference between both products is that the loan usually always has a fixed loan rate. The rate of the loan always stays the same for the life of the loan. In a home equity line of credit, the interest rate is variable and can increase or decrease throughout your repayment.

Most people use these two products very differently. For instance, for people looking to purchase one large item using their home’s equity, a loan is preferred. For instance, loans are used for adding an addition to your home or paying for college tuition. A line of credit is usually used for smaller sums of money that are withdrawn over a period of time. For instance, many homeowners might use a line of credit to manage debt or to renovate their home piece by piece over the course of a couple of years instead of all at one time.

Carlos

Rebecca Oconnor asked:




According to a Federal Reserve Bank report published in 2002 thirty-five percent, the biggest share, of home equity loan dollars goes back into the borrowers house through home improvements and maintenance projects. Considering the benefits and the ease of leveraging the equity you already have through a second mortgage or mortgage refinancing, this is hardly a surprise. ”The cake itself is the equity, and that is the important part of ownership,” Richard Wakelin, of Wakelin Property Advisory. If you are smart about building equity you can earn it even faster and with less investment. Some of the best ways to increase equity are simple such as:

1. Buying a home in the right neighborhood is critical. If the real estate values are rising, you could build equity without doing anything more than holding on to the property.

2. Curb appeal is key to raising a home’s value. It doesn’t take much money to install irrigation and landscape a property, but the first impression from the outside can be worth a lot. If you have some equity in your property already, a home equity credit line may be a better way to fund these smaller improvements than using a credit card. The interest is lower and so are the payments.

3. Remodel the kitchen if you really want to increase the value. Buyers are willing to pay more for a home with a gorgeous cook-friendly kitchen. If you are looking to do a remodel, mortgage refinancing is a good way to cash out on the equity that you already have and invest in building further equity. (Likely with a tax break on the interest as well.)

4. Master bedroom and bathroom improvements are also a good way to increase equity and can also be paid for through a refinance.

5. Don’t forget small improvements with “sweat equity” either. Just a little bit of capital and a lot of muscle can greatly improve a home through painting, wall papering and other do-it-yourself upgrades.

A little bit thought and effort can go a long way in making your property your best investment!

Stacey

Mary Wise asked:




You may have taken out a home equity line of credit to help you cover the expenses of life – anything from adding an additional bedroom to your home to putting your twins through four years of grad school. But if you suddenly received a letter stating that your home equity line of credit has been frozen, you are probably wondering where to turn next.

Most home equity credit lines bear the stipulation that the creditor can freeze your line under situations that are outlined in Regulation Z, under the Federal Reserve Board’s codes. For many home equity lenders, this is interpreted as being able to shut you off from your available line of home equity credit if market conditions in your area make the value of your home decline, or if your income has been reduced to where they feel you are at great risk of defaulting on payment to them for credit already extended.

Get Around Regulation Z

You have several options. You can argue with your lender to attempt to persuade them to reinstate your credit line. You can back up your argument by pointing out your good payment history (if payments have come due under your agreement); or by listing homes in the area that have recently sold at or above market value. Discussing the freeze with customer service for your lender has a small, but not impossible, chance of getting your credit line unfrozen.

Your best option is to vote with your feet by choosing a different lender. True, you may have to pay additional closing costs over what you have already paid for your current, now-useless credit line, but you can switch lenders.

In fact, there are online lenders who deal very effectively with taking on borrowers who have had a frozen credit line. With less strict stipulations regarding market values, these lenders can refinance your current line while making the additional credit you need available to you.

Apply Online For the Credit Line You Need

To apply, you will need to gather all the information pertinent to your current home equity line of credit. Visit the lender’s secure online site where you can begin the application process. You will be asked to verify certain things – like your income, employment, etc. Most of the needed documentation can be either emailed or faxed to the new lender.

As with a your original home equity line of credit, your new credit line will allow you to use your home equity line of credit for up to twenty five years. At the end of that period, you will have the opportunity to renew your credit line, or begin repayment. Oftentimes, you can pay during the time that your home equity line of credit is open; this greatly reduces the amount that you will owe at the end of the term.

If you have had your home equity credit line frozen, voting with your feet by choosing a new lender can not only make a bold statement to the lender that you have other options, but can also save you money by the possibility of getting better rates online.

Franklin

Rebecca Welch asked:


Home improvement loans can provide money for a complete home remodel or specific home improvements. These upgrades can transform your house into a home and increase your property value. Another benefit is that the money is tax deductible. As long as you carefully evaluate your fincancial situation, you may use a home equity loan to make home improvements.

Home improvement loans are not the same as construction loans. Construction loans provide financing for building and completion of a new structure. A home improvement loan is essentially a home equity loan placed on your existing home that you currently occupy. The lender generally pays you in one lump-sum at closing. This is also sometimes called a second mortgage loan.

Home equity loans are great if you only want to borrow small amounts of money for home improvements and pay off the loan in a short amount of time. A home equity line of credit can create flexibility and convenience by giving you the ability to withdraw money in varying amounts as necessary. However, home equity credit lines generally use adjustable interest rates and this carries the potential risk of increasing over the life of the home equity loan.

Lenders rarely place restrictions on home improvement projects as long as they are conform to your local building requirements. Depending on the size of the home improvement project scope of the job, you may do the home improvement work yourself or hire a general contractor. Be certain you read the fine print on your home equity loan for home improvements because some lenders may require you to hire a contractor for the project which can significantly increase the cost of your home improvement project.

Terms for home equity loans can range from 5 to 25 or even 30 years. Some lenders offer fixed rate as well as balloon rate options. The minimum amount you may borrow for a home equity loan is generally about $10,000. You can most often times borrow up to 100% or, in some cases, even as much as 125% of the value of your home. However, most lenders will limit a home equity loan for home improvements to a maximum of $1,000,000.



FRANKLIN

Joseph Kenny asked:


There are some alternatives available to the homeowner who needs financial help but does not want to refinance their present mortgage. There are however, at least two main options if some sort of equity loan is desired. You can obtain an equity credit line or a second mortgage loan and there are specific advantages and disadvantages with each one. Money can be saved over time if you take time to choose the loan that best fits your needs. Whatever you decide you will need to know the exact reason you want to borrow and the amount you need to make the loan for.

One of these loan options could be just the right thing to help solve your financial problem. You need to take a close look at both types of loan in order to see which one will give you the best type of service.

The most common form of equity credit is the Home Equity Line of Credit and this option gives the borrower the greatest amount of flexibility. If you want to do much needed repairs or renovations to your home, the best way to make this happen is to use the equity available in a loan that contains an equity line of credit. An equity credit line often comes with a debit card option that allows you to access more money when it is needed. Home improvements can often be estimated to be less expensive than they end up being, so the ability to draw on funds from the equity on your home is a very convenient option of a home equity credit line.

There are some disadvantages of the Home Equity Line of Credit. There could be a higher variable interest rate than with a second mortgage. The lender could make an adjustment in the credit rate at any time because the rates are variable and the changed interest rates could result in higher monthly payments. The interest is not tax deductible, so there are no tax advantages to HELOCs.

There are some definite advantages to a second mortgage. You may choose this option over the Equity line of credit. The interest rates on second mortgage loans are usually fixed rates and this is the main difference between the second mortgage and the equity line of credit. The second mortgage will allow you to borrow a fixed amount instead of having an open account from which to access funds and possibly put yourself into debt. The second mortgage loan can be used as a way to get out of debt. It can be used to consolidate outstanding debts and bring it all under one low monthly payment. You can also use the interest on a second mortgage as a tax deduction.

The biggest risk you encounter with a home equity loan is the fact that you are using your home as collateral for the loan. This is to protect the lender in the event that you fail to meet your loan payment requirements. The decision could be made to foreclose and you could end up loosing your home. Be sure you know just what is at risk when you take out a home equity loan of any type.



COURTNEY

Joseph Kenny asked:


Home equity loans are taken where the borrower uses the home as collateral. These loans may be useful for home repair, medical bills or even for education. Most home equity loans require good to excellent credit history. These come in two forms, closed end and open end.

Both of the above types are considered as second mortgages as they are secured against the value of the property just like any mortgages of traditional type. Home equity loans are usually (but not essentially) for a shorter term than first mortgages. In United States, Home equity loans interest can be deducted on one’s personal income taxes.

Closed end loans

The borrower will receive a lump sum on sanction but cannot borrow further. The amount of money that can be borrowed are normally depends upon certain variables like appraisal value of the collateral, credit history of the borrower, income source of the borrower among others.

Normally, the borrower can take up to 100% of the appraised value of the home less any liens, although there are lenders that may go above 100% when doing over-equity loans. However, state law governs in this matter. Closed end loans have fixed rates normally and generally amortized for periods up to 15 years.

Some offer reduced amortization and at the end of the term a balloon payment becomes due. These larger payments may be avoided by paying minimum payment or by refinancing the loan.

Open end home equity loan

Revolving credit loan of this nature is also referred to as a home equity credit loan where the borrower has the option to choose when and how often to borrow against the equity in the property and the lender setting a initial limit to the credit line on the basis of some criteria as mentioned above for closed end home equity loans.

Similar to closed end equity loans, it is possible to borrow up to 100% of the value of the home less any lien. These line of credit are normally available up to 30 years at a variable interest rate. The minimum monthly payment may be as low as only the due interest rate and the interest rate is based on the prime rate plus a margin.

Fees

Following are the list of possible fees that may apply to home equity loan: Appraisal fees, originator fees, stamp duty, title fees, arrangement fees, closing fees, early pay-off, and other costs are added in loans. Surveyor and valuation fees may also apply to loans, but some may get waved. The survey and valuation costs can also be reduced provided the borrower provides his own licensed surveyor to inspect the property under consideration.

Title charges in secondary mortgages or equity loans are fees for renewing the title information. The borrower should read and ask questions about the fees being charged to make himself sure about the fees since all these loans have some sort of fees tagged



THERON