Home Equity Loans – second mortgage

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

rsc asked:


I have about $60,000 in my cash accounts (banking and savings). Some of this money is in a savings account that I would consider my emergency funds. I have a very generous retirement program of about 12% of my salary, which has been established for about the last 6 years. I am 33 years old, with a wife that has a job and a generous retirement plan and 1 baby.

I have some other small mutual funds that I started from savings which are 3-10 years old and have a current value of approximately 12,000 dollars.

I have a mortgage. We purchased it for $579,000, and we put down 10%. The first loan was a 7 year arm at a rate of 6.5%, and the second loan was a home equity line of credit for $ 57,900. The second loan is a variable rate, pegged to the prime rate. When I first started that loan, it was at 8.5 %, but it is now as low as 4.2 percent. This, of course, changes with the prime rate. The first loan I pay on principle, and the current debt service is $ 448,000. The second loan is interest only, and still has a principle balance of $57,900. The down turn in the housing market has left me with only about 2-4% equity in my home as the latest appraisal was only $520,000

My only other debt is a car loan which has a balance of 15,000 and a rate of 5.25%.

What should I do with this extra cash?

Do I:
1. Pay down that line of credit? (obviously this has a variable rate that can change, and is currently taking up 100% of my line of credit which impacts my credit score)
2. Buy a second property? There are some good deals out there for a second home (i.e. condo in Florida) or a rental property. This would be an investment property since we can get something very cheap, but the downside is managing the property.
3. Put it in an invest vehicle? A mutual fund, bonds, etc.
4. Leave it in my savings account?
5. Or something else?

How much of that cash should I keep in my account versus investing or paying of my debt?

SHELDON

Apurva Shree asked:


Second mortgage debt consolidation is a popular method of dealing with increasing liabilities. It is also called as a home equity loan that can help pay off your debts. You are taking a loan against the equity of your home. Equity refers to the amount you get after deducting the total mortgage payments made from the current value of the home. Such loans are ideal for homeowners who own homes of considerable worth with lot of equity. You can also opt for a home equity line of credit. With this option you borrow only as much as you need at any given time and pay interest only for that amount.

Dealing With Debt With A Home Equity Loan

Second mortgage debt consolidation is definitely better than having to deal with irate creditors who rightly demand to be repaid. Life can become insidious when you realize you have no way of making payments on time, it can be harrowing for you and your entire family when the creditors come calling.

Any of us can end in bad debt situation due to various reasons and some of them are beyond our control such as medical emergencies, accidents, loss of job or loss of income due to the unexpected death of a family member. At such times, it can be tough to find a solution unless you are lucky to have a home with equity that you can use to borrow funds to consolidate your debts.

Consolidating your debts into one single loan can be beneficial as you end up with a single loan, which most definitely has a lower interest rate. Instead of dealing with many creditors, you just have to work out a budget and make sure you make payments on your first and second mortgage loans. The crucial part is to select a reliable creditor who has experience in the field and can offer you a customized loan to resolve debts. Do some research and find out details by logging online.

In fact, you may also apply for such a loan online without having to leave the comfort of your home. Select a few firms and choose from amongst them. Be sure to select a creditor who is registered with the BBB and negotiate a loan that gets you lower EMIs at lower interest rates.

When you are securing second mortgage debt consolidation loan, remember it is being offered against your home and that if you are irresponsible and fail to make payments on time, you may lose your home. If you make payments on time you stand to gain a lot as not only have you paid off your debts but have improved your credit score too.



OLLIE

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

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

Sunny asked:


When I bought my house it was with two mortgages. A regular mortgage and a home equity line of credit mortgage. Now that i am selling the home, the realtor and I realized that the second mortgage was never recorded with the mortgage company. Can I sue the mortgage company for the amount of the second mortgage since it was their error?

ERROL

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

Joseph Kenny asked:


A home equity loan gives you the financial power to do a lot of things that you may not be able to do otherwise. By tapping into the equity in your home, you have access to possibly many tens of thousands of dollars – depending on how long you have lived there. But, with the right planning, there are some uses for that home equity that may result in much higher long-term dividends than others. Here is what you need to know about a home equity loan.

The longer you have lived in your home – the more equity you have built up in it. If you are fortunate enough to live in an area that is rapidly increasing in value – as some areas are, then your home could provide you with a lot of equity. Several types of home equity loans will quickly give you access to it. The different types of loans that can help you the most are those that best fit in with your own plans.

You may be able, for instance, to refinance your first mortgage and get a much better deal – and get access to your equity, too. Primarily, this would be with a cash out mortgage. You simply refinance your mortgage for a lower interest rate on what you still owe, and then add to it how much you want to take out of your equity. At the same time, if you take about 5 years off of the length of the original terms, you can save tens of thousands of dollars more.

Another way is to get a second mortgage. This usually comes in the form of what is typically called a home equity loan, or you can also get a home equity line of credit. Both of these will give you access to your equity, but will also require an additional payment each month. A home equity loan is a straight lump sum loan, while a home equity line of credit gives you a little more flexibility by allowing you to withdraw only the amount of cash you need from an account with a pre-approved credit limit. You also will only pay interest on the amount you withdraw.

Any of these options will give you access to your equity, and you are free to use the money as you wish in any of them. You can take that fantastic trip you’ve always wanted to go to Hawaii or to the Bahamas, you can pay for a college education with it, medical bills, and even consolidate some of your other debt. These choices, however, may not be your best option.

Your best option is to take at least some of the money and reinvest it into your home by making renovations, improvements, or additions to your home. The renovations that add the most to a home is modernizing a kitchen with high tech devices and appearance, a bathroom, or an additional room. Each of these, along with many other things, can greatly increase the value of your home – and give you even more equity.

Besides the benefit of adding to the value and equity of your home, home improvements are also tax deductible, which gives you even more savings. Before you make any renovations or additions, though, be sure to check with your local Realtor, or contractor, to discover what construction style or materials will bring the most value. Not everything you do will increase its worth, so it will pay to find out in advance.

When you go to look for a home equity loan, be sure to get several different quotes. This will allow you to compare the features and get a good idea of what is available. Stay away from any loan that has a penalty for paying it off early.



JOSUE

cpb asked:


First option is to put it all toward credit card debt. This is attractive because I would love to get rid of monthly cc payments.

Second option is to put it all in savings. This sounds good because I have not been able to save as much as I would like for an emergency. This would give me some peace of mind.

Third option is to pay it toward my mortgage and/ or home equity line of credit. I like this idea because when I sell my house, I can put more into a new one.

Fourth option is spend it all. Probably shouldn’t do this, but it is an option
I do have a retirement plan at work that I have been contributing to for 4 years.

RONALD

Terry Edwards asked:


Home equity loans can be an excellent source of funds when used wisely. One of the ways in using the cash from a home equity loan is to consolidate your debts.

Why is it wise to consolidate your debt with the money from your home equity? There are several good reasons which include:

-Paying a much lower interest rate than you pay on your credit cards. In some cases it can be a third of what a credit card company is charging.

-You can most likely deduct the interest expense on your home equity loan whereas you can not on credit cards. This is a huge benefit.

-All your debts are consolidated into one monthly loan payment.

So, what are your options when it comes to using your home equity to pay off your debts? Again, you have choices you can take advantage of including:

Home Equity Loan

Also known as a second mortgage, you can take the equity in your home and borrow against it at a favorable rate of interest. You get the cash in one lump sum and can then pay off your debts or use it how you wish.

Home Equity Line Of Credit

Similar in nature to a credit card, HELOC allows you to draw funds from your home equity and only make payments on that amount, not on an entire loan.

Cash-Out Refinance

This is the third option you have and involves refinancing your existing home mortgage. You would refinance the new mortgage at a greater amount and take the extra money in cash. For example, you want to pay off $25,000 in credit card debt and owe $150,000 on your current mortgage. You could do a cash-out refinance to a new loan amount of $175,000.

Using your home equity to pay off high interest debts can be a wise decision if done right. Just be careful to not start using those credit cards again.



EDDIE