Home Equity Loans – second mortgage

Jon Arnold asked:




What is a home equity loan? A home equity loan is where you borrow money using the equity in your home as the collateral. Many people use home equity loans for refinancing their home, their kids’ college tuition or unexpected medical bills. Be aware that using a home equity loan will reduce the actual equity of your home.

Your home equity is the value of your property. Your home value will increase as you pay your mortgage or do home improvements that benefit the value of your home.

Collateral is property that you use as a guarantee that you will repay the money. If you do not pay this is where your collateral comes into play. The lender can use your collateral to obtain the money you owe. Using your home as collateral is risky if you do not know one hundred percent that you can pay the loan back because you will lose your home if not.

A home equity loan is like a second mortgage some might say. You can use this money to improve your home furthering its value or pay for other expenses you might have. In order to get this type of loan you will probably have to have great credit history. It is even possible to have your loan interest deducted from your income taxes.

There are two types of home equity loans; closed and open end. Closed end loans means you will receive one lump sum when the loan is closed and will not have the option of borrowing more. The lenders will base the amount you can borrow on things like your credit history, the appraised value of your collateral and your income.

Closed end loans usually have rates that are fixed for up to fifteen years. You can also refinance this type of loan if needed. You want to try and always pay the minimum amount if not more every month.

Open end home equity loans are sometimes called a line of credit. This means you can decide when you want to borrow and how often against the equity of your property. The lender will still set a limit to your credit line. You might be able to borrow up to one hundred percent of the value of your home, however some states are only allowed to loan up to eighty percent of the value.

There are certain loan fees you should be aware of that may apply as well, depending on the laws in your state. These include title fees, stamp duties, closing fees, appraisal fees, originator fees, and surveyor fees.

While you may have to pay all these fees, if you do your research before obtaining this type of loan, you will know if it is worth it. You don’t want to chance losing money or value on your home.

If you are uncertain if a home equity loan is right for you, speak to your financial consultant. Discuss all your concerns and questions so you can both decide what is best for your situation.

Darryl

James Copper asked:


A home equity loan is a popular and attractive source of borrowing for thousands of people. Part of the reason people think first of a home equity loan when they need a substantial sum of money is that home equity loans are marketed extensively, with advertisement in every medium.

Lenders love home loans because they are highly risk free. Therefore, a home equity loan is easy to get and offers one of the best interest rate of any type of high end loan.

A equity loan is attractive for consumers, not only because of the low interest rate but because that interest can be deducted from income taxes. The outlook isnt completely rosy for consumers who are considering a home equity loan, however.

With any home equity loan you can borrow only up to 80 percent of the equity youve accrued in your home at the time of your loan application. If, for example, your homes current market value were 150,000 and the balance on your mortgage was 70,000 you could borrow 80 percent of the 80,000 equity, or 64,000.

Consumers should not make the decision to take out a home equity loan lightly. Nor should they borrow to the maximum 80 percent just because they can. Borrow only what you have to have.

Not only will this save you money in the long run but a loan officer who sees you being foolish about your willingness to put yourself in debt and your home at risk may think twice about your having the responsibility to pay back your mortgage – and on time.

Sometimes a home equity loan is used foolishly for a vacation or toys such as boats and other things that the consumer could really do without. The borrower assumes that their home will appreciate in value over the term of the loan so it really isnt like borrowing or paying interest, is it?

What if the home doesnt appreciate? What if the local mill or factory or other major employer closes down and the town loses a big chunk of property taxes and people move it and then the retail shops lose money and so forth and so forth. If you dont live in the Mid-Atlantic States or the rust belt talk to people who did or do. Hear what they have to say about the likelihood of this occurring.

No matter where you live downsizings, mergers, company closures, layoffs and buyouts are commonplace. There is just no way to predict that your home will appreciate, your job will be secure and youll be financially better off at the end of the loan and throughout the life of the loan.

A home equity loan, while often a wise thing, and a necessary action, shouldnt be taken on for frivolous desires.

There are occasions, such as lowered home mortgage interest rates and to get out from under high interest unsecured loans such as credit card debt when a home equity loan can save you money and improve your credit standing. When this opportunity arises, assuming you have the equity and can afford the payments, a home equity loan can be a very wise decision.



EVAN

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