Home Equity Loans – second mortgage

Carrie Reeder asked:




Home equity loans are regulated in California to limit fees and caps.
No matter where your financial company is based, they will have to
follow these regulations if you are living in California. By expanding your
search to national financing companies, you can find competitive rates
and terms that still follow California law.

Providing Full Home Equity Disclosure

Many of the basic ideas of the federal “Truth In Lending Act” are based
off of California financing law. By using lenders who follow California
financing laws, you can protect yourself from predatory lending.

For example, one such California principle is the idea of full
disclosure, listing out interest rate, fees, and terms before signing a loan
contract. In California, lenders must offer contract copies before
application and before using the credit.

It is a good idea to look over the fees and terms to be sure they are
fair and meet your needs. For example, if you find a prepayment penalty,
then you may want to negotiate a waiver or find a different lender.

Placing Caps on Home Equity Loan Fees and Terms

California laws also place caps on fees and terms, particularly with
sub prime loans. For example, interest cannot be charged on a loan until
one day after closing. There are also limits on late fees and early
payment.

Large financial companies have been prosecuted in California for
failing to meet regulations. So even with the biggest names, look over the
terms to be sure they are not overcharging you.

Shopping Outside of California for Best Home Equity Loan

Even with local laws, you can still search outside of California for
low rates. By expanding your search online, you can find competitive
rates and terms than still meet California law.

Start with a broker site that will link you to several lenders. By
providing your address, financial companies will be aware of the unique
laws related to your loan quote.

Be A Smart California Home Equity Loan Shopper

Your California address won’t protect you from unscrupulous lenders. Be
sure that you practice good credit habits by reading and understanding
all your loan terms. Also, compare rates and fees with other lenders to
be sure they are inline with the market.

Stephanie

Julian Lim asked:


  

A home equity loan or home equity mortgage is an effective second mortgage on your home, taken out after you have developed some equity in your home. For example, if you purchase a home for $200,000 and you have paid $40,000 over the years against the loan principal and the market value for the home is now $250,000, you now have equity in the home of $90,000.  Theoretically, you could apply for a $90,000 loan against the equity, but in practice, most lenders prefer to keep the loan at 80% loan to value or, in this case $187,500.  In this example, a loan for $27,500 could be approved.

 

Definitions

 

Some of the definitions that you will need to be familiar with include equity, mortgage, interest rate, loan fees, loan type, principal and amortization.  If you don’t understand the meaning of these words and others insist on an explanation from the loan broker or lender.  You can also do the research yourself so that you are certain you understand the difference between an ARM and a fixed rate loan and why you should choose one or the other, depending upon your circumstances. There are some very good primer level books and classes on almost any subject you can name out on the internet including that of a home equity loan.

 

Terms

 

In the case of a home equity mortgage, the word ‘terms’ can mean ‘words’ or it can mean the length of time before the loan is paid off.  A loan against the equity of your home often will have a longer term than a personal loan.  You may see terms of 15 years, 20 years, even 30 or 40 year terms on the loan.  Of course, the longer the term, the more money in interest you will be charged and the larger the percentage of funds you pay are for the privilege of using the money rather than for the money itself.

 

Rates

 

The home equity loan rates are also called interest rate or interest. Interest rates are usually structured in one of two ways, although there are other types of loans as well.  The fixed rate loans set an interest rate up front and it remains in effect throughout the term of the loan.  The adjustable rate mortgage loan has an interest rate that will vary according to a predetermined index or formula.  For example the rate may be two point above prime rate, adjustable not more than twice every two years.  These requirements will vary depending upon the economy of the time.

 

Advantages and Disadvantages

 

A home equity loan or home equity mortgage has the advantage of being a lump sum of money that you can use in any way you see fit–presumably legal.  It has the disadvantage of increasing your debt loan and increasing the cost of money sometimes significantly. For example taking out was is actually a second mortgage on your home may raise your debt to value level to the point where private mortgage insurance is mandated by many lenders.  This can add thousands of dollars to the repayment amount over the years.

 



GIOVANNI

Julian Lim asked:


A discussion of the nature, benefits and operational methods of a home equity loan in simple, easy to understand language is helpful in deciding whether or not such a home equity mortgage should be acquired.

A home equity loan or home equity mortgage is an effective second mortgage on your home, taken out after you have developed some equity in your home. For example, if you purchase a home for $200,000 and you have paid $40,000 over the years against the loan principal and the market value for the home is now $250,000, you now have equity in the home of $90,000. Theoretically, you could apply for a $90,000 loan against the equity, but in practice, most lenders prefer to keep the loan at 80% loan to value or, in this case $187,500. In this example, a loan for $27,500 could be approved.

Definitions

Some of the definitions that you will need to be familiar with include equity, mortgage, interest rate, loan fees, loan type, principal and amortization. If you don’t understand the meaning of these words and others insist on an explanation from the loan broker or lender. You can also do the research yourself so that you are certain you understand the difference between an ARM and a fixed rate loan and why you should choose one or the other, depending upon your circumstances. There are some very good primer level books and classes on almost any subject you can name out on the internet including that of a home equity loan.

Terms

In the case of a home equity mortgage, the word ‘terms’ can mean ‘words’ or it can mean the length of time before the loan is paid off. A loan against the equity of your home often will have a longer term than a personal loan. You may see terms of 15 years, 20 years, even 30 or 40 year terms on the loan. Of course, the longer the term, the more money in interest you will be charged and the larger the percentage of funds you pay are for the privilege of using the money rather than for the money itself.

Rates

The home equity loan rates are also called interest rate or interest. Interest rates are usually structured in one of two ways, although there are other types of loans as well. The fixed rate loans set an interest rate up front and it remains in effect throughout the term of the loan. The adjustable rate mortgage loan has an interest rate that will vary according to a predetermined index or formula. For example the rate may be two point above prime rate, adjustable not more than twice every two years. These requirements will vary depending upon the economy of the time.

Advantages and Disadvantages

A home equity loan or home equity mortgage has the advantage of being a lump sum of money that you can use in any way you see fit–presumably legal. It has the disadvantage of increasing your debt loan and increasing the cost of money sometimes significantly. For example taking out was is actually a second mortgage on your home may raise your debt to value level to the point where private mortgage insurance is mandated by many lenders. This can add thousands of dollars to the repayment amount over the years.



QUINCY