Home Equity Loans – second mortgage

Jim Aldridge asked:




Need cash fast but can’t find the right resources? Or perhaps because you have a not so decent credit score? Whichever the case maybe, home equity loan might be the right fit for you. Of course, this only applies if you own a home.

Unlike the usual refinancing, these are just small loans which allow a borrower to pay an existing loan. While refinances take quite a while to process, home equity loans are more efficient. Since the equity of the borrower’s house serves as the main collateral, lenders feel more secured hence release the loan quickly. This means that in the event you are unable to settle the payment, you will be at risk of losing ownership of your house.

There are certain types of home equity loan such as Home Equity Loans, Home Equity Lines of Credit and Bridge Loans.

Home Equity Loans
Similar to conventional loans, it is a type of loan that uses equity as collateral. It is the difference between the value of your house and the total amount of money you have paid. To illustrate, if the appraisal value of your house is $300,000 and your mortgage balance is $200,000, your equity is $100,000. Equity is inversely proportional with your mortgage balance; which means that as your equity goes higher, your mortgage balance decreases.

With home equity loans, the lender gives the complete amount of loan which will be paid back by the borrower in an installment basis. In most cases, it comes with a fixed interest rate.

Some of the many benefits of home equity loans include longer terms which could reach up to 15 years, it comes with a fixed rate so there is no guessing game, and you can borrow the full amount of the equity. People choose it to pay for college education, home improvement or to purchase any consumer goods.

HELOC
Unlike the home equity loan, the HELOC or home equity line of credit doesn’t involve a one-time release of the applied loan. It is basically like a credit card process; a line of credit. This means that if you don’t spend a dime, you won’t have to pay anything.

Some of the benefits of HELOC include adjustable rate, flexible terms of payment, and once the total amount of loan owed is repaid, and you will be able to borrow it again. Most people apply for HELOC to support emergency funds. As the money is available for withdrawal, it can somehow add financial security as need arises.

Bridge Loans
If you are planning to sell your house and you need cash to make improvements for your house before selling it, then you will be interested in availing bridge loans. So this type of loan is most used by typical home sellers.

Some of the features of bridge loans include having competitive loan costs which could reach up to 80% of the total market value, and payments can be settled after 3 or 4 months after release.

These loans can be helpful at times when you are in great need of money. However, take note that the risk of losing your valuable asset is at risk hence before considering to apply for any loan, try to find other resources which will put you at less risk or no risk at all.

Kelly

Eliot Hobbs asked:




Home Equity is the difference between the fair market value (appraised value) of the home and the outstanding mortgage balance. Because the home is likely to be a consumer’s largest asset, many homeowners use a home equity loan for major expenses such as education, home improvements, medical bills, or debt consolidation.

A home equity loan is a type of mortgage in which your home serves as collateral. Home equity loans can either be a revolving line of credit known as a HELOC (Home Equity Line of Credit) or a one-time, closed-end loan sometimes referred to as a 2nd mortgage. A revolving credit line lets you choose when and how often to borrow against the equity in your home. In a closed-end loan, you receive a lump sum of cash. Interest on these types of loans are usually tax deductible.

If you have bankruptcy or bad credit issues, a home equity loan or line of credit may be right for you. Before making a decision, you should carefully weigh the costs of a home equity line against the benefits. Shop for the loan terms that best meet your borrowing needs without posing unnecessary financial risk. You can apply for and obtain more information on home equity loans through a mortgage broker, your bank or credit union.

The federal Truth in Lending Act requires lenders to disclose the important terms and costs of their mortgage products, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information.

Clyde

Carrie Reeder asked:




When you apply for a home equity loan, lenders consider your creditworthiness when deciding whether or not to extend a loan. Your creditworthiness is assessed based on three things: credit history, income, and loan-to-value ratio.

Credit History

As with any loan, your credit history will have a major effect on home equity loan availability and loan interest rates. Fortunately, qualifying for financing on a home you already own is much easier than qualifying for a new home loan. If you have good credit, you should have no trouble qualifying for a home equity loan. You should also be able to obtain a relatively good rate. If you have bad credit, you should still be able to obtain a home equity loan, but your rate will probably be a bit higher. Before applying for a home equity loan, take time to pull your credit report. If possible, improve your credit rating by removing mistakes and old debt.

Income

Even though the equity that has built up in your home belongs to you, lenders will still want to make sure that you can pay back any amount that you borrow. To determine your ability to repay, lenders will assess your monthly income and your total debt-to-income ratio. (Debt-to-income ratio is a term used to describe how much of your monthly income goes towards paying your mortgage, credit card debt, loan installments, and other financial obligations, including the home equity loan for which you are applying.) Most lenders will want to make sure that your total debt does not exceed 38 percent of your monthly income.

Loan-to-Value

The loan-to-value ratio is the amount you owe on your house versus the amount your house is worth. For example, if your house is worth $100,000 and you still owe $70,000, your loan-to-value ratio is 70 percent. When you get a home equity loan, the value of your home is re-assessed. The lender will add your current mortgage balance to the requested home equity loan amount, and divide the sum by your home’s current value. The final amount is the new loan-to-value ratio. Many lenders want to keep this amount below 80 percent. However, some lenders are willing to loan you 100 percent of your home’s value or more. Here is a list of recommended Home Equity Lenders online. It’s important to use a reputable lender online to make sure your personal information is secure.

Monica

Eddie Lamb asked:


When seeking to understand what an equity line of credit is, it is important to first understand what home equity is.

It is basically how much of your home you have actually owned. It is calculated by looking at the current market value of your house minus your outstanding mortgage balance.

If you have a house that has been appraised for $100,000 and you own 50,000 on your mortgage, you have $50,000 in equity. If you no longer owe anything on your mortgage and your mortgage is paid off, then you have 100% equity in your home.

So what is a equity loan?

This is a loan that is borrowed against what you already own in your home. Though just because you own 50% equity, it doesn’t mean that you’ll be given that much. Your debt, income and credit history will also be evaluated. These loans offer tax savings due, because the interest paid on the loan is tax-deductible. They’re often used to consolidate debt, to finance college educations, large vacations, home repairs or even a second home. The most common option is to make regular payments toward both the interest and the principal. Many of us are looking for the best company that offers great deal in terms of mortgage loan.

There are two basic types of equity loans.

Traditional, AKA a second mortgage, gives borrowers a lump sum of money that must be repaid over a designated period of time.

The second type is an equity line of credit. This provides borrowers with a credit card or checkbook to use to borrow funds. With this, if you have $20,000 in equity you can use the credit card or write checks up to that $20,000 amount. It’s kind of like a secured credit card. The benefits of this type of loan are that you don’t begin accruing interest until you make a purchase with your line of credit.

Most home equity lines of credit are only available for a certain time period, 10 years for example. There will also be limitations on how you use your credit. Some plans may require you to borrow a minimum amount each time you borrow and they may require you to keep a minimum amount outstanding. some lenders refer to a second mortgage as a loan used for purposes of adding value to your home.Some plans may also require that you take an initial advance when the line is set up.



SCOTTIE

Susan Jan asked:


There comes a time in many people’s life when we crave for more financial stability and wealth, but a limited fund prevents us from securing what we so earnestly desire. But if you are lucky enough to own a home already, this asset can provide you the means for furthering your dreams through the home equity loan.

You might have heard of people taking out home equity loans for various reasons such as for making home improvements or paying for medical bills or children’s college fees. These types of loans are also widely used for the purposes of debt consolidation.

Your home is the most valuable asset out of all that you possess. You can borrow money against your home on the basis of the value or equity of your house. But what does the term Home Equity actually refer to? In the United States, residential properties are most commonly bought through a mortgage. The mortgage amount can be paid over quite a long stretch of time. After you clear the entire mortgage amount, the property belongs to you. In the meantime, your property builds up a value of ownership; this value is the “equity” of the homeowner. This equity is worked out on the basis of the current market value of your property. The value of equity is calculated by subtracting the outstanding mortgage balance from the current market value of the home. You are eligible to get a home equity loan against this equity value of your home. One thing to remember though is that while your the equity of your home cannot be sold, the financial institutions do not mind lending you money against it.

You have to opt from two main types of loans, namely the traditional home equity loan, popularly known as second mortgage, and the home equity line of credit.

The traditional home equity loan will enable you to borrow a lump sum of money that is to be repaid over a fixed period. On the other hand, the home equity line of credit provides the borrower with a checkbook or a credit card which can be used to borrow cash against the equity of the home.

It is important to make an informed decision before you choose a financial institution from which to take out this loan. It is often not the case that the institution that granted you the first mortgage will offer you the best deal the second time around. So shop around on the internet and choose a bank only after making a thorough comparison.



CALVIN

Amanda Hash asked:


Many advise to obtain a cash-out refinance loan when you are in need of cash and you want to obtain inexpensive funding. However, under certain circumstances it is smarter to resort to second mortgages as these loans can provide equally inexpensive funds without altering the conditions of the previous mortgages.

Second mortgages are home equity loans which use the remaining equity on your home to guarantee repayment. Thus, the previous mortgage loan remains unaltered as only the remaining equity is used and not the one used to guarantee the mortgage loan balance. This is particularly important under certain circumstances when the outstanding mortgage loan has very advantageous terms and it makes no sense to refinance it.

Second Mortgages and Home Loans

Second mortgages are loans based on equity that use only the exceeding equity that is not guaranteeing the outstanding mortgage loan as collateral. Thus, with a home equity loan you can obtain additional cash out of your property just like with cash-out refinance home loans but you do not need to touch your outstanding home loan.

Compared to home loans or first mortgages, second mortgages charge slightly higher interest rates and do not offer such advantageous terms. With a home equity loan or second mortgage you will not be able to obtain repayment schedules of up to 30 years like with home loans but you can get up to 15 years without difficulties.

When to Resort to Second Mortgages

Cash-out refinance loans are an excellent option. They provide all the funds you need while refinancing your outstanding mortgage balance. Besides, as home loans they provide very advantageous terms. And you end up with a single monthly payment instead of having two payments like you do with second mortgages.

However, this is true only if your new refinance home loan has better or similar terms as your previous mortgage. Otherwise, refinancing your home loan may not be to your advantage and the cash you obtain from a cash-out refinance home loan may turn out to be significantly expensive compared to getting additional funds with a home equity loan or second mortgage.

For example: If you obtained your current mortgage loan under good credit and market conditions and thus you have a fairly low interest rate, chances are that by refinancing your home loan and due to the fact that you want to obtain additional cash via a cash-out refinance home loan, you will end up paying a higher interest rate.

If the amount of money you still owe on your mortgage loan is significant, you may end up wasting thousands of dollars more towards interests and you need to ponder that when you analyze the costs of refinancing. Instead, with a second mortgage, you are just paying interests for the money you are actually requesting and not also for the amount of your outstanding mortgage that remains with the same interest rate and fees as always. Thus, when analyzing whether you should go for a second mortgage or a cash-out refinance home loan you need to take into account APRs, Outstanding balances and the costs of each financial transaction.



BERNIE

rwdrumz asked:


Don’t bash me for my methods, but just give your thoughts in the current situation. Ex and I had a super easy divorce where I said, “I’ll move out, you keep paying the mortgage on the house and we’ll decide later if you refinance or sell it.” Well, we have a 2nd mortgage line of credit for all our debt consolidation and home improvements. I have been paying half this 2nd mortgage cuz it was debt we both gathered. But if I gave her the whole house and it’s 1st mortgage payment, shouldn’t she also be paying the 2nd mortgage? The 2nd mortgage came from equity which I earned half of. Now I’m giving up that equity so isn’t that her resposibility now?

For example on a refi. 1st mortgage we owe 200k. House worth 280k. 2nd mortgage balance 80k. She refi’s the 1st mortgage, I get 40k in equity. She refi’s 2nd mortgage and even if we split the 80k, I just give her back the 40k I earned from equity so I’m even. Is my logic correct here? I should be 100% free of any of the mortgages?
That’s exactly what I was asking about. If she refinances, logic is that it’ll be for the whole amount (1st and 2nd mortgages) and I’d not fit in anywhere. Some think I’m still responsible for 1/2 the HELOC because I helped create that debt it was put towards. But it’s from equity in the home so if I give up my equity portion, I also give up my 1/2 of the HELOC resposibility, right?

JEFFREY

Alan Lim asked:


Home equity loan and refinancing are two excellent ways that can help you manage your finances. However, it may prove difficult to choose one from the other and should depend on what your financial goals are. You can opt for the lower payment schemes of cash-out refinancing, or you can choose the great tax benefits offered by a home equity loan. The choice, however, does not prove to be as simple as this. Here is a comparison of these two types of loans to help you see which one is right for you.

Cash-Out Refinance Loan

Cash-out refinance simply means that you are refinancing your existing mortgage in order to lower your monthly payment and/or your current interest rate, and get some additional cash for other pressing reasons such as for home improvement, renovation, and the likes. If you are lucky to choose the right timing, you may be able to get all these with cash-out refinancing. Say, your home is valued at $300,000 and your existing mortgage balance is $200,000, your home equity remains at $100,000. You are free to borrow the remaining equity as you deem necessary.

Home Equity Loan

Home equity loans are usually provided in two kinds: the home equity line of credit and the home equity installment loan. A home equity line of credit line means that you are borrowing against the value of your home; your home is your collateral to the credit. Home equity plans are usually set at a fixed time; say 10 years but with variable loan rates. Your interest rate and the annual percentage rate of your mortgage can move up and down depending on the market trends. During the specified time, you are free to obtain the cash when you need it, and pay only for what you happen to spend. Some mortgages are offered with payment of full outstanding balance, while others allow repayment over a fixed time.

On the other hand, an installment loan is a loan that has a fixed rate that stays the same all throughout the rest of your home equity loan terms. Also called the closed end home equity loan, you amortize your loan for periods lasting up to about 15 years. In this kind of home equity loan, you usually receive a lump sum at closing depending on your home value, and you can not borrow further afterwards.

Which is better?

Remember that interest rates do not usually behave normally, much as you want them to. When this happens, home equity loans may actually prove cheaper than refinancing, although they are potentially riskier. Choosing what is better between the two should depend on individual circumstances. For example, if you plan to pay off your mortgage and do not need as much money, you can go for a home equity loan to get lower rates and shorter terms. On the other side of the fence, with cash-out refinancing, you can get all your money up front and simply pay off interest and principal on a lowered monthly basis as agreed upon, with no frills. Weigh carefully based on what your financial objectives are and choose one which you think will give you a fairer deal.



ISIAH