Home Equity Loans – second mortgage

Tim Gorman asked:




Home Equity Loans

Unlike your first mortgage, you are already in the home, and usually time is not such a major factor. You can close the loan at your own leisure, and take your time researching the different options available to you. A mortgage lender will have a range of loans to suit you. Some homeowners opt to refinance an existing mortgage and use the cash obtained at closing to reduce debts.

Essentially, a home equity loan is a ‘second mortgage’ – a loan secured by your property. If you don’t make good on your payments, the lending company or bank can force the sale of your house to recover their money.

The money is paid back through an increased mortgage payment. Plus, it is an online application, not a paper application that has to be picked up and then turned back in to the bank or mortgage company. Search for quotes from top local mortgage companies based on your needs and choose the best broker to help you through the loan application process. Mortgage calculators help borrowers understand monthly payments and let you compare rates between multiple mortgage products nationwide.

Terms, rates, and fees are subject to change without notice, prior to closing your fixed-rate conversion. Certain restrictions and documentation requirements may apply.

Understanding the difference between home equity loans and home equity line of credit …

Line of Credit

And unlike a home equity loan, with a line of credit you pay interest only when you use your funds. You’re drawing on a home equity line of credit on which the interest meter is ticking, while at the same time the value of your emergency fund has fallen. No need to panic, of course. But because interest rates change constantly, what may have seemed like a good rate when you first purchased your home may be much higher than today’s rates. If you choose to refinance to take advantage of the new rates, you will have to take out a new mortgage with a lower rate or more favorable terms, and use it to pay off your old loan.

Interest is the largest single cost associated with most equity loans, but it is not the only expense borrowers face. Taking out a home-equity loan or a home-equity line of credit imposes the same fees as a mortgage . Interest rates for loans differ, so it pays to check with several lenders for the lowest rate. Compare the annual percentage rate (APR), which indicates the cost of credit on a yearly basis. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates.

Interest rates on such loans are usually adjustable rather than fixed and lower than standard second mortgages or credit cards. Interest on both a home equity loan and line of credit may be deductible (consult your tax advisor about your personal situation). Interest rates, fees, repayment conditions, loan amount, and additional costs such as points can all vary. For example, a lender may charge an annual fee for using your home equity line of credit or even a larger fee if your credit line is inactive.

Interest rates on home equity loans are generally fixed for the loan period. On the other hand, the home equity line of credit provides more flexible terms of use. Interest paid on a home equity line of credit is normally tax deductible. Interest rates lately are near record lows. If you bought your home a few years ago you may well be able to refinance at a lower rate.

Travis

Eddie Lamb asked:




In an economy where housing prices are increasing and employment rates are stationary, the use of an equity loan is often the choice of homeowners who need extra funds. Such loans are sometimes known as second mortgages or even third mortgages and, if you have enough equity in your home, are relatively easy to get. Before choosing a lender, the homeowner considering such a loan should submit an application to several lenders and then do a home equity loan comparison to find the best deal. Today, with a struggling economy, this type of loan may be difficult to get, and the choices of terms may be limited.

What Does the Term “Equity” mean?

Home equity can be defined as the cash-in-pocket worth of the home. To calculate this amount, the estimated market price of the home less the amount of money still owed on the home is considered the equity. At the time of purchase, the equity technically is zero. If you make a down payment, that amount reduces the principal and gives you some ownership in the home. When you make your mortgage payment each month, a tiny portion of the payment is applied against the principal. As the amount owed decreases, the equity is increased by a like amount

As market prices of homes in the neighborhood increase, the value of your home is assumed to have increased as well. This is the second way in which home market values can be improved. If you were to sell the home at the improved price and pay off the existing mortgage, you would receive the difference, that is the equity, in the form of cash..

Your home’s equity will be increased if the value of your home improves because you have carried out home improvement projects to the building. Adding a room, upgrading the kitchen or bathroom or adding significant energy saving features typically increases the market value, and thus the assumed equity.

Home equity loan Proceeds Usage

An equity loan on your home makes sense for the borrower when there is need of significant cash at a low interest rate. Because the proceeds of the loan are secured by the home’s value, it typically costs much less than credit card debt. Sometimes the homeowner will pay off credit cards and other loans with a high interest rate by taking out a home loan.

Another common use for the proceeds of a second mortgage is the cost of college for you or for family members. An equity loan may be needed for catastrophic medical expenses not covered by insurance plans. Home owners sometimes obtain home equity loan funds in order to pay for major improvements or repairs on the home, especially those that increase its value.

What Borrowers and Lenders Look For in a Loan

Lenders want to know that you can repay the money that you borrow on your home’s equity. The amount of the loan, the length of the repayment period, your credit score and the interest rate all affect the amount of monthly repayment on the loan. The lender usually looks at the current market value and the amount of equity you have accrued before setting the amount they are prepared to make available in the form of a loan.

Stephanie

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

Veritas et Aequitas () asked:


Okay I asked this question before, however I wasn’t clear on some things.

My mother passed away recently and there is a home that I have been making payments on using her money from a joint account. That money has run out. I will be named executor in a few days, however a mortgage payment is due at the same time.

I do not want to put any money into the home not having any security. She has massive medical bills (even with insurance) and some other unsecured debt.

I want to keep the home and it has supposed equity however it wouldn’t sell for more than what is owed on the home so there is no actual equity, more so because last in 2005 she took out a second mortgage for home improvements.

I want to keep the home and I will pay off the home in full, however not at the expense of being held liable for her debts. It would break my heart to not have time to grieve and go through her belongings.

I will be talking to counsel soon however I am losing my mind in the moment, it’s too much.
They can take everything if they want, because my mother’s soul doesn’t reside in her belongings. I just know in the end they won’t get anything because of obligations before them such as tax and court fees, etc. There is no money to pay them.

DAVIS

Dan asked:


We have a mortgage in Canada but are permanent residence is now in the United States. The home has been a second home/vacation home but we are now wanting to purchase a new home in the US. My mom is going to take over our payments in Canada and live in the house. When we apply for a mortgage do we have to report the mortgage payment in Canada as we won’t have a monthly debt but we do have alot of equity that contributes to our net worth. We are worried we won’t get approved because it will hurt our debt ratio. I was told that because it won’t show on a US credit report and the debt is another country we don’t have to report it but our income tax returns shows the mortgage. Any advise greatly appreciated

ARCHIE

boddymood asked:


I am divorced and the house was left to me to deal with. I have had the house on the market since Oct. with not even an offer to date. I really want to get out of this house since my ex wife still lives at the end of my road. I also can not afford the mortgage payment, it is 1200 a month between the first and second. There is plenty of equity in the home. What would be some options that I could take to get rid of this short of forclosure

MARC

MIKE SELVON asked:


Currently, the loan rates for refinancing a mortgage or taking out a home equity loan range in the area of 6.5 percent to 7.8 percent. While these rates are higher than just a year or two ago, they are still considerably lower than interest rates on credit cards and other consumer debt vehicles. Property values in most areas have risen substantially over the last several years, providing many homeowners with good equity, which they can now effectively use to take out a debt consolidation loan that will save them money every month.

A debt consolidation loan that is drawn again home equity is considered by many financial experts to be a shrewd and wise financial move on the part of homeowners. It allows the homeowner to transfer their high interest credit card debts, automobile loans, and other consumer loans to a much lower interest rate because the new loan will carry a much lower interest rate.

Homeowners can tap into the equity in their home by using one of three primary vehicles for an equity-secured debt consolidation loan. The can use their equity to get an equity line of credit, they can choose to take out a home equity loan, or they can simply refinance their existing mortgage. Each approach to borrowing against the equity has various benefits and considerations of which to be aware.

Some homeowners think that the simplest approach to doing a such a loan is to simply do a full refinance mortgage. In this scenario, they would borrow enough to cover the pay-off of their existing mortgage plus all of their other consumer debts.

The advantage of this approach is that it makes managing finances very simple, as all the debt payments would be reduced to one monthly mortgage payment. However, if interest rates on home mortgages have increased and are higher than the original mortgage, then this would not be the best approach.

If the existing mortgage loan rate is very attractive, then taking out a home equity one, or a second mortgage, would be a good way to handle the debt consolidation loan that is desired. The proceeds from the second mortgage home equity loan would be used to pay off other consumer debts and the multiple debt payments would be transformed into the one payment.

The third option is to apply for a home equity line of credit (HELOC) which provides the flexibility and convenience of drawing on the equity in the home. Once a HELOC is established, the homeowner can use the available funds at any time to pay off other debts, to finance vacations, college expenses, or anything else they choose, up to the limit of the available credit that is established based on the amount of home equity.

These loans combine the convenience of a revolving credit account with the low interest rates of home equity loans and can be a good way to manage debts and also be prepared for emergency expenses that every homeowner encounters from time to time. Most lenders provide the homeowners with debit cards and convenience checks to access their home equity line of credit.

Another reason financial experts point to in recommending doing a debt consolidation loan that is secured by equity in your home, is that the interest on equity loans is tax deductible, while the interest on other types of consumer debts is not. The deducibility does depend on how you handle the filing of your taxes, so you should consult a tax professional about this process.



EVERETTE

Aimee asked:


My fiance and I purchased a house 2 years ago, but we recently decided to pursue doctoral degrees in a different state. We need to move to the other state by mid May, and given the current state of our economy, we are concerned that our house will not sell in time. A good friend of ours is willing to rent our house if we can’t sell it, and the rental income will more than cover the monthly mortgage payment as well as taxes and insurance. I understand that mortgage lenders are getting stricter about who they lend money to. Do you think there’s any way that a financial institution will grant us a second mortgage so that we can buy a second house? We have roughly $25,000 equity in our current house, and the balance of the mortgage is only about $90,000. We also have just over $50,000 in savings (not including retirement), so we’ll easily be able to put 20% down. The kicker, though, is that I’ll be giving up my job for a graduate assistantship, so our total household income (not including potential rental income) will likely drop to about $40,000. My fiance is a master’s student right now, so his income will not change considerably. If we cannot sell our current home and we’re forced to rent to our friend, then will mortgage lenders include this rental income in our total household income when deciding whether or not we qualify for a second mortgage?

TYLER

Veritas et Aequitas () asked:


Okay I asked this question before, however I wasn’t clear on some things.

My mother passed away recently and there is a home that I have been making payments on using her money from a joint account. That money has run out. I will be named executor in a few days, however a mortgage payment is due at the same time.

I do not want to put any money into the home not having any security. She has massive medical bills (even with insurance) and some other unsecured debt.

I want to keep the home and it has supposed equity however it wouldn’t sell for more than what is owed on the home so there is no actual equity, more so because last in 2005 she took out a second mortgage for home improvements.

I want to keep the home and I will pay off the home in full, however not at the expense of being held liable for her debts. It would break my heart to not have time to grieve and go through her belongings.

I will be talking to counsel soon however I am losing my mind in the moment, it’s too much.

RUDOLPH

Mariza V asked:


I owe 2 houses one under my name, in the rental property I am 1 payment behind in the first deed and 5 payments behind on the second deed. I can’t make the payments no more, I am in home loans, and my paycheck has been reduce soo much. I want to keep only my owner occupied property and let go the rental. Balance is $410,K and $220K on second. I been thinking on calling the lenders to give them the house back, some other friends tell me to do a shortsale, and other to file bankruptcy or forclose the property. at this point all I want is not to have $5,500 mortgage payment a month. I can’t refinance because there is no equity, and my credit has been ruined due to the late payments, I don’t want to go to a credit consultant because my intentions are not to keep the house. I need some advise before I go to an attorney .

SHAWN