Home Equity Loans – second mortgage

Aekkapol Kongvicheinwat asked:




Home equity loans have increased in the recent times. If a person decides not to refinance his first mortgage and instead wants to have cash out of debt consolidation, then companies are lending their helping hand by lowering the refinance cost and increasing their homes’ Equity. A home owner can borrow against the value of his house by two ways. One is called home equity line of credit and the other one is a home equity loan. Both are generally considered to be a second mortgage. While with the first one a person can draw amount up to a predetermined limit, whenever there is need for money. The other option provides for taking a lump sum by paying a fixed payment monthly over a period of time.

The amount drawn in each case will be based on several factors such as the income of the borrower, his debts if any, value of his home and his credit history. Both types of loans are appealing in their interest rates because they are secured against home. Often both these loans are tax deductible. Choosing either option depends on individual financial conditions. If a person needs to meet the expenses like college fees or medical bills, then Home Equity Line of Credit will best suit him. But both loans carry higher interest rates as compared to first mortgage.

With these loans, there are again two more options available. One is adjustable rate and the other is a fixed rate. And there will be closing costs which must be taken in to consideration. One can be free from any worry about increasing costs should interest rates rise. Home Equity Line of Credit provides lower initial rates as compared to loans. But there is a risk of more interest rate due to its fluctuating rates. But there are no closing costs for these loans. If a person gets tempted with the second type of loan, then he must be cautious as to not get in to more debt. Failing to repay will give way for the risk of losing his house.

To qualify for this credit, a person needs to provide proof of income, home ownership, and details about how much equity he has in his home. At least 20% of the value of the home must be paid off. An appraisal will help a lot.

Elaine

Alan Lim asked:




Why do Lenders perceive home equity loans as relatively safe? This is due to the fact that the bank can simply confiscate the house of those who fail to pay back the loans.

Many people have resort to home equity loan for different reasons. Various reasons include financing the purchase of a second home, consolidate high interest debts, pay for the tuition in college and renovate or remodel the house.

Although there is a risk of losing the house if you are unable to pay back the home equity loan, many still avail of this because it is for anyone who qualify for and get a huge amount. On the other hand, the interest rates are affordable and can also be written off as a tax deductible.

One program that is gaining popularity is the 125% home equity loan. This kind of program is considered a second mortgage and allows the individual to borrow one fourth of the value of the home.

To qualify for this type of home equity loan, individual must achieve a certain credit score and under certain guidelines, which is up to the lender.

The basis for those who qualify for this loan will be up to the lender. These firms can look at the length of time the homeowner has lived there as well the individual’s current credit score. These things will influence the amount that will be given when the application has been approved.

The lender will not require the applicant to have the property appraised when requesting for a home equity loan. The purchase price will be used as the indicator if the person has lived there for less than a year.

A home equity loan may last from 10 to 30 years. It is best to shop around and compare the rates of various lenders before signing anything on paper.

Everyone in the household must understand what will happen in getting this type of loan. This means making some sacrifices to cut down on costs to be able to pay on time rather than losing the house.

Sarah

James T Allen asked:




Is a home equity loan a smart debt management decision? The short answer is – it can be. But BEWARE!! Discipline is the key to successful debt management with a home equity loan. Not to be mean but lack of discipline probably played a bit of a role in you getting into debt in the first place.

With that being said, lets take a look at what exactly a home equity line of credit (HELOC) is and how it could possibly work in debt management. First of all – Do you qualify for a HELOC loan? In this economic climate, that could be tough especially if your finances and debt is a little out of whack. Before you get too wrapped up in the process, check with a bank or two to see if an equity loan is even a possibility.

If it is or might be, some individuals have successfully used a home equity loan as part of their debt management program. You can use the collateral in a home equity loan to help with your debt consolidation and ultimately manage your debt a little easier. Keep in mind though that you still have the debt, it is just structured in what is hopefully a more manageable way.

When you have a this type of loan, you can use secured debt to pay off your outstanding bills. A credit card debt is unsecured collateral. A home equity loan, however, uses the collateral of your home to give you the equity you need for debts like bills.

You can take advantage of the lower interest rates available through your bank with a loan of this type. The interest rates will help you pay off your debts at a faster rate, which is smart debt management. You will be able to get out of debt more efficiently and will pay less in interest over time.

Like I said before if you are using a home equity loan for debt management, you will need to be very disciplined. If you are late with a credit card payment, you will receive a call from a collection agency. But if you are late with a home equity loan, the bank can take away your home. Nevertheless, if you are disciplined, you can use your home equity loan to help pay your debts through superior debt management.

One last thing – Pay off your debt with a HELOC and that’s all. Don’t allow yourself to increase your debt when you receive the additional funds or spend the money on anything but your debt. Don’t compound you current problem. This is that discipline thing I keep harping on.

Eva

Steven Walters asked:




If you need a way to free up the cash equity in your home one way to do so is through a 100% home equity loan. With interest rates as low as they are currently the home equity loan has been a very popular option for getting more cash and a 100% home equity loan takes that even one step further. This type of home equity loan might not be right for you, but you can decide by asking yourself a few easy questions.

How Low is the Interest Rate?

You always want to get a low interest rate on any loan, but this is especially true of a 100% home equity loan. Make sure you can’t get a better rate by getting a personal loan or tapping your credit cards. It’s highly likely that the interest rate on your home equity loan will be the lowest you can find, but it never hurts to check first and make sure. Go online and request quotes from a variety of online lenders to get a good idea of what their current home equity rates would be for you.

You should also know that by borrowing against 100% of your homes’ value you won’t qualify for the lowest rates, but the rate should still be lower than that on credit cards and even personal loans. In addition you get a tax savings by taking a home equity loan, so factor that into your decision as well.

What are the Benefits of a Home Equity Loan?

Your personal benefits will be determined by what you use the cash for. If you’re paying off high interest credit cards or making home improvements that will boost the value of your home then by all means you should consider a home equity loan. On the other hand, if you want to use the cash to finance a trip around the world or to go on a huge shopping spree then you should probably reconsider. Basically, as long as you’ll be improving your financial standing with the proceeds of your home equity loan then it makes good sense for you. If there is no financial benefit then you should forgo the equity loan and simply save for that purchase.

How Long Will You Stay in Your Home?

The length of time you plan on living in the same house can make a big difference in whether or not you want to consider getting a home equity loan. By taking all of the cash out of your home now you are ensuring that there won’t be much left if you sell the house in the next few years. Especially with the declining house values you could actually end up owing more than the home is worth.

While it can make sense for some, you should consider carefully before taking a 100% home equity loan. Once you’ve taken all the cash out of your home equity you no longer have that cushion and you might end up missing it should you have an emergency or even a good opportunity that you would need cash for later. If you’re benefiting financially then it could be a good move. In any case you’ll want to get quotes from several lenders before agreeing to any home equity loan.

Esther

Alan Fernandez asked:




The Home equity Loan or HELOC has been around for many years and in the past has been a useful tool in helping middle class families do improvements on their home, send a child to college or even help provide starter capital for a small business.

The concept is based on the idea that your home is worth a set amount in the current market, for example $250,000. Your mortgage balance is a portion of that market value, for example $ 100,000 leaving you with $ 150,000 in equity. This equity can be accessed via a loan or line of credit up to a certain percentage of that equity amount. Any debt against that equity lowers the value of the equity above total debt (mortgage and Home equity). So a $50,000 loan against the equity would lower the available equity for future loans to $100,000. Or a line of credit (more common use of HELOCs) where $20,000 was actually used would lower available equity to $130,000.

Home equity loan repayments are tax deductible to the consumer and in a stable economy where interest rates are low a family with substantial enough income to make the payments or pay off large chunks of the loan can do well.

Unfortunately, the current atmosphere for these loans is bleak. People borrowed on the equity of their homes for any number of wise or unwise reasons and saw the value of their homes shrink along with any available equity. Some saw the reduction so severe that the loans outstanding were more than the worth of the house.

Also, unfortunate is the rise of unscrupulous lenders and their agents and brokers who decieved people into loans they could not afford such as mortgage brokers who neglected to tell their client about the escrow (property taxes and homeowners insurance) that would be due on top of their regular mortgage payment thereby doubling the anticipated promised payment to something less affordable.

Or the bank who gave kickbacks to appraisers to over-appraise a home so that more equity would be available; equity often borrowed on at the closing. More business for the lender, bad for the borrower.

When looking at a home equity loan try to find a reliable lender through research, ratings and word of mouth. Next, look at rates. Some are set at the Prime Interest rate or slightly above. They vary from lender to lender as well as do the closing costs. Next, determine the length of time on the loan. Remember the loan will be structured to indicate the amount of your payments representing interest only. If you pay via that method you will be paying interest but not decrease your principal.

Most importantly, do an honest self appraisal of why you wish to use the equity in your home.
Many people use HE loans to pay back high interest credit card debt. What happens all too often is that the credit card is not destroyed as it should be, but used again later. Credit card debt thus increases and the HE loan still hasn’t been paid off and so total debt has increased.

Going into debt can be useful if well planned and thought out but many times the lender is plunged into a cold, murky place where no matter what…the loan has to be paid back.

Ralph

Lee Traupel asked:


It is important to note that there is no real difference between home equity loans and the second mortgage. A home equity loan is commonly referred as a second mortgage financing in most states throughout the United States.

A second mortgage financing package allows you to tap into the equity available in your home. It is done without any refinancing of the first mortgage and hence it is an additional source to get money when needed. If you need cash in a lump sum that too in a lesser time and at a low interest rate then second mortgage will be your automatic choice.

A first mortgage loan and second mortgage loan are two entirely different kinds of loans. The first mortgage is essentially the loan you take to buy a home. The amount applied as first mortgage loan is very high and the interest rates are fixed. After making a bulk payment as down payment you will have to pay the remaining amount in installments – the bank fixes the installments period on the front end of the contract.

A second mortgage is the loan taken against your equity that is secured against the loan. It is usually taken when a certain amount of money is needed in bulk and on an urgent basis. You and your creditor fix the mode of repayment and you may pay it back in installments or as a lump sum in most cases.

The second mortgage is taken when you need a certain amount of money in bulk and for an immediate need. Some of the reasons for applying for home equity loans are:

• For college tuition

• Paying of credit card bills

• For a vacation

• Other debt consolidations

• Emergency needs

All kinds of loans can be consolidated through the process of debt consolidation. The interest rates in the case of first mortgage are lower than the interest rate applied in second mortgage. Since the amount of loan in first mortgage is higher and the payment period is longer, the interest rate is lower – a second mortgage is just the opposite, with higher interest rates and a shorter pay off period in most cases.



ROYAL

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

Joseph Kenny asked:


When you need the cash out of the equity of your home you may wonder which one is better for you – a cash out mortgage or a home equity loan. The truth is that both have their advantages – but probably one will be better for your situation than the other. This will mean that you need to know a little about each in order to make up your mind. Here are some differences between the two.

A cash out mortgage will involve refinancing your first mortgage. This could be a great way to go, especially if you can get interest rates on the refinance that are at least one percent (two percent is to be preferred) lower than your present mortgage rates. So not only could you get the equity you want, but also you will save thousands of dollars by getting better interest rates, too.

You get the equity you want in a lump sum when your cash out mortgage is approved. All you need to do is to refinance for the amount of the mortgage that is still outstanding, and add the amount of cash you want from your equity. You will want to watch and make sure that you do not refinance for an amount equal to 80% of the value of your house – that includes the equity, as well. The reason for this is simple, you want to make sure that 20% of the value of your home is left intact so that you do not need to pay the Private Mortgage Insurance. This could add thousands of dollars each year to your payments.

You can enjoy further savings if you decide to shorten the term length, too. If you make the remainder of the refinanced loan to be about 5 years less than what you have now, you could literally save tens of thousands of dollars more over the life of the mortgage.

A home equity loan is another way to get to the cash in your equity that you want. A home equity loan is a second mortgage, and you may be able to get it as either an adjustable rate mortgage or a fixed rate mortgage. While it obviously does not require you to refinance your first mortgage, it will give you a new monthly payment – and the cash you want. As a second mortgage, there will also be closing costs and other fees – with the possible exception of going through your present lender.

The interest rate will be higher than on a first mortgage, when you get a home equity loan. The interest rate, as well as the amount you can borrow, will depend mostly on your credit rating, and your ability to repay the loan. Make sure your credit report is accurate before you apply. If there are inaccuracies on the report it can hurt you and give you higher interest rates than you might have otherwise, or even cause your home equity loan to be rejected.

Before you agree to either a home equity loan or a cash out mortgage, you will want to shop around to find the best deal. It will take some time to do it right – but you are the one who will benefit from the savings. Check the various features, such as the interest rate, the fees, and the terms of repayment – including the monthly payments.

The choice is now yours. It can basically be summed up as – do you want to refinance your existing mortgage, or get a second mortgage? Both have their benefits, but only you can decide which one will work best for you.



MITCH

Joseph Kenny asked:


Having bad credit is not the end of the line – especially if you have a home that has some equity in it. There still are lenders who will be glad to talk to you. In fact, they know that this kind of loan may be just what you need to help you consolidate your debt and get off to a better start. Your equity is valuable to you and can enable you to get the cash you need. Here is what you need to know.

It is important that you understand that a home equity loan is a loan against your home. This means that should you default on your payments, you could lose the house – plain and simple. So, before you decide to proceed with applying for a home equity loan, it is important that you make sure your own present financial situation can adequately handle it. Sit down and calculate how much you can afford and how much you need.

Bad credit will limit your loan, so you may want to take the needed time to repair your credit rating. Having better credit will allow you to get a larger loan, have lower interest rates, and more time to repay the loan. So, if your loan can wait until then, it would be a good idea in order to get more desirable terms.

A home equity loan can be either fixed rate or adjustable rate, enabling you to make a choice here according to your needs and the economy. Keeping an eye on the market rates will enable you to know when you should get your loan.

You will be able to get a home equity loan as either a cash out mortgage, or as a typical second mortgage. A cash out mortgage means refinancing your first mortgage and taking out the equity you need. The more equity you have in the home means the more that will be available to you – as long as your current finances are able to handle the loan. Getting a new first mortgage can help you get better terms if the interest rates are lower and if you have been working on your credit score.

When you get a home equity loan as a second mortgage, you finance less, and it will add a second payment each month. The terms generally go up to 15 years.

If you choose to use the money as a means to consolidate some debts – it is an excellent way to do it. The interest rates will be high, but probably not as high as a credit card, or other personal loan. If you also look at the home equity loan as a means to restore your credit rating, it can become a good tool to do so. Making payments on time each month will eventually bring your credit score up to where you want it to be, and then, if you want, you could refinance for a better deal.

While you are looking to get your home equity loan and find the best terms available for your situation, you want to be sure to get several quotes. There is competition between lenders – even for people with bad credit. By shopping around, you will soon have a loan suitable for your needs. Take your time, and learn about mortgages first, and keep a sharp eye out for the best deals.



BLAIR

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