Home Equity Loans – second mortgage

Maria Mbura asked:




It’s very simple. Home equity loan is a loan that you take from a financial institution and the money is borrowed using your house as collateral. Your home is the security against which the money is lent to you. The equity will be the difference between the market value of the house minus any outstanding debt, mortgage or loans against the property. That is the amount that can be borrowed. It is for this reason these loans are commonly referred to as second mortgages.

The amount borrowed can be charged a fixed or variable rate of interest. One of the benefits of home equity loan is the interest you pay is tax deductible at the end of the year when you file your tax returns.

Home equity loan is often used for purposes like debt consolidation purposes whereby you pay off high interest rates personal loans like credit card debt, medical debt, or education loans. It is also popular for home improvement financing.

There may be a number of ways of availing this kind of a loan. But the net result is always productive as you get a lump sum which attracts a fixed interest rate with fixed monthly repayments. The low monthly payments and affordable interest rates make it very popular.

Home Equity Loans are absolutely attractive mortgage agreements and because of their capability not only to operate as a safety net, they have seen an increase with many homeowners taking up these loans.

Finally it is wise to remember that your home is the collateral which means, in case you are unable to pay the loan you stand to have the house sold by the lender. So it is important to make your repayments constant and timely.

If you are looking for home improvement financing then understanding how a home equity loan works is crucial in helping you decide if this is the type of loan you should get.

Michael

babygrldog asked:


Is the higher rate of interest charged by the lender the only reason for them to do a second mortgage?Why would the lenders lend more money than the property is appraised for?

MICHEL

Terry Edwards asked:


Home equity loans can be an excellent source of funds when used wisely. One of the ways in using the cash from a home equity loan is to consolidate your debts.

Why is it wise to consolidate your debt with the money from your home equity? There are several good reasons which include:

-Paying a much lower interest rate than you pay on your credit cards. In some cases it can be a third of what a credit card company is charging.

-You can most likely deduct the interest expense on your home equity loan whereas you can not on credit cards. This is a huge benefit.

-All your debts are consolidated into one monthly loan payment.

So, what are your options when it comes to using your home equity to pay off your debts? Again, you have choices you can take advantage of including:

Home Equity Loan

Also known as a second mortgage, you can take the equity in your home and borrow against it at a favorable rate of interest. You get the cash in one lump sum and can then pay off your debts or use it how you wish.

Home Equity Line Of Credit

Similar in nature to a credit card, HELOC allows you to draw funds from your home equity and only make payments on that amount, not on an entire loan.

Cash-Out Refinance

This is the third option you have and involves refinancing your existing home mortgage. You would refinance the new mortgage at a greater amount and take the extra money in cash. For example, you want to pay off $25,000 in credit card debt and owe $150,000 on your current mortgage. You could do a cash-out refinance to a new loan amount of $175,000.

Using your home equity to pay off high interest debts can be a wise decision if done right. Just be careful to not start using those credit cards again.



EDDIE

Chris Navi asked:


Americans saw the value of their homes jump an average of 13 percent over the past year, according to the Office of Federal Housing Enterprise Oversight. This has made it easier than ever for many homeowners to qualify for a home equity loan or line of credit.

With their low interest rates, these secured forms of credit can be your most effective way to borrow money. Plus, loans of up to $100,000 often offer the added benefit of being tax deductible (check with your tax advisor). But it’s important to choose the right home equity loan for your needs and to use it wisely.

Smart Borrowing

Financing a renovation that will add value to your home, such as a new kitchen or a second bathroom, or helping with your child’s college tuition, are valid reasons to borrow on the strength of your home equity. This is especially true since the borrowing costs are generally much less expensive than debt that is not secured by collateral.

By the same token, shifting hefty balances you owe on credit cards to a home equity loan can be a good move. Your credit cards are likely charging annual interest of 13 percent or more, so consolidating that debt with a home equity loan can easily slash your borrowing costs in half.

Remember though, the idea is to eliminate your debt, not make room for more of it.

A home equity loan isn’t free money. At the end of the day, your home is what’s backing the loan. So if you miss payments, the lender could take possession of your home.

There are also important differences between a home equity line of credit and a home equity loan — differences that can help you determine which is a better choice for you.

Home Equity Line of Credit

A home equity line of credit (HELOC) allows you to use as much or as little of your pre-approved limit as you like. Plus, you are charged interest only on the portion of credit you are currently using, which keeps borrowing costs low. The rate of interest floats slightly above the prime rate.

This flexibility is helpful if you’re looking to do a series of small home renovations over a long period of time, or perhaps finance the start-up of a home-based business.

* The advantage: If the prime rate decreases, your cost of borrowing will become cheaper, and interest rates are still very low compared to previous decades.

* The disadvantage: If the prime rate increases, your borrowing costs will increase as well. If you find it difficult to squeeze in credit-line repayments now, you may risk missing some repayments altogether when interest rates go up.

Also, depending on the terms of your particular HELOC, you may be required to pay only the interest accrued each month. On the upside, this means your minimum payments will be low during the interest-only period. On the downside, you will not be rebuilding any of that valuable home equity you’ve just borrowed against.

When the interest-only period ends, you will be faced with one of two scenarios. You may be required to begin paying back the loan principal (the original amount you borrowed). That means your monthly payments will increase, and if you don’t have enough cash coming in to cover those larger payments, you could be in trouble. Or you may be facing what’s called a balloon payment, meaning you must pay the entire outstanding balance of your HELOC in full.

Always try to pay more than the minimum each month, so you are constantly chipping away at your loan principal.

Home Equity Loan

A home equity loan has a fixed interest rate. You receive the full amount of the loan in a lump sum, which makes it a good choice for large, one-shot expenses, such as a home renovation or debt consolidation. And because you must pay it back in regular increments over a specified period of time — often 10 to 15 years — a home equity loan offers a measure of built-in discipline for those who may be tempted to use the “interest-only” payment option offered by some HELOCs.

At the end of the repayment schedule, a home equity loan will be repaid in full.

Loan-to-value ratio The general rule is you can borrow 75 to 80 percent of your home’s current appraised value, minus what you owe on your first mortgage. This is called the loan-to-value ratio (LTV). For example, if your home is worth $200,000 and you owe $100,000 on your current mortgage, you could borrow an additional $60,000 and still be within an LTV of 80 percent. Staying within the sensible 75 to 80 percent range will help you avoid repayment problems down the road. However, some lenders have begun to offer a “high-LTV” option in which you can borrow up to 125 percent of your home’s equity. Beware: If you decide to move because of a job transfer or other reasons, the sale of your home may not provide you with enough money to pay off both your mortgage and the outstanding home equity loan.

Borrowing conservatively is always wise.



MICHEL

Prerna Joneja asked:


Home equity loan can be a difficult concept for the people who have never dealt with home ownership earlier. So, we define equity as the financial value of a property or business beyond any amounts payable on mortgages, liens, claims, etc. In short, home equity is how many houses the person has earned.

Equity is basically the difference between the market value of a property and the claims held against it. It is the difference between the price for which a property could be sold and the total debts registered against it. For example, if your house is worth $150,000 and you owe $110,000 then your equity is $ 40,000. Then, you get home equity loan depending on the credit and many other factors for $40,000 that you have built up in equity.

There are two types of Home Equity Loan:

Standard Home Equity Loan

Home Equity Line of Credit

Standard Home Equity Loan is the loan that is assured by your home or is secured by the equity in a home. This type is a better option if you need a large amount of loan and for long term.

Standard home equity loan is also known as Second Mortgage or equity loan. Home equity loan can help people pay off their big interest rates, non tax-deductible customer’s debt or meet some other short term needs.

A standard home equity loan is a closed-end loan that can have a fixed term, a fixed rate, and fixed monthly payments. It can carry a variable finance charge rate that switches with a federal interest rate. The amount of the loan is usually made available in a lump sum.

Home Equity Line of Credit is a loan option if you need a smaller amount of loan and for short term. This loan type provides you an option of withdrawing money from an equity account when you need it. The home equity line of credit is an “on demand” source of funds that a borrower can access and pay back as needed.

This type of loan has fluctuating rate of interest. The borrower has to only pay the interest if he carries a balance because this line of credit are essentially a revolving line of credit, like a credit card but with a much lower rate because the line of credit is secured by your home. The borrower can tap the credit line simply by writing a check, and pay back the loan as quickly or as slowly as the borrower like, as long as he meets the minimum payment each month.

Benefits of Home Equity Loan are:

Home Equity loan can be the best option if you need to repair or reconstruct your home for debt consolidation or for medical or educational expenses.

It can be used to get rid of credit card debts.

It can be used to meet your educational loans.

It can be used for investment in other real estate.

It can be used to pay off your medical debt.

It can be used to refinance your other debt.

It can be used for home improvement.

It can be used for some major purchases and expenses.

It can be used for debt consolidation.

Home Equity Loan can be used for home improvement projects because home improvement can be costly and paying that cost might be difficult. Home equity loan provides good interest rates.

Studying in a college has become very expensive these days. Home equity loan can also be used for paying college expenses. This type of loan helps people who have financial problems so that they can afford the college expenses.

It does not matter what is your decision but whenever you take a home equity loan it should be taken from a trusted and well reputed lender. As a whole, home equity loan is a better option while taking loan because it is beneficial in all aspects.



KIM

Anton Gabriel asked:


 

The steady increase in the market prices of home and other residential properties has opened up a whole new dimension of opportunities. If you are a homeowner having bad credit problems, you would definitely like to take the advantage the equity value present in your home. With regard to this, you can very well apply for bad credit home equity loans. The amount derived through these loans can be used to serve a multitude of purposes. By releasing the equity value of your home, you can meet needs like home improvement, finance education, purchase a car, wedding, vacation, consolidating debts etc

 

As the name refers, these loans are approved on the basis of equity value present in your home. The amount advanced is usually evaluated by subtracting the remaining payments towards your home from its present market value. These loans are also referred to as second mortgage loans. Under these loans, typically you are approved a fixed amount which is nearly 80% of the equity value present as a equity in your home.

 

Through these loans, you will be able to gain a maximum amount of up to £100,000. The repayment term is long and convenient and spans over a period of 5- 30 years. Due to the presence of collateral, the rate of interest levied on the loans is kept low and remain fixed for the entire duration. In the best interest of your financial condition, it would be best to repay the installments as soon as possible , other wise you may end up paying more on interest rates than what you had actually availed.

 

The loans are sort of secured loans, where in the equity acts as collateral. it is also because of the collateral that makes it possible for the applicants to derive these loans, even with history of defaults, CCJs, IVA, arrears etc. ensure to make timely repayments of the installments. Failures in doing so will allow the lender to size the property.

 

While availing bad credit home equity loans, it will be beneficial to take compare the quotes of various lenders using the online services. This will help you obtain the loans at competitive rates. The loans are of great help if you are in a position to repay the amount.



ERNESTO

Lesley Lyon asked:


It is difficult to manage the finances with the ever-increasing default rates and delinquencies. The prospect to having to pay many bills of different amounts every month from the existing loans to medical expenses, credit cards and so on can be of great pain. It is not only difficult to have a track of all the expenses and bills but also the cumulative costs can sum up to a big amount. This is where the home equity loans might come to the rescue, as it helps to pay only one bill every month.

Home equity loans may help get the finances organized and also to plan accordingly. Home equity loan makes debt consolidation possible. Home equity loan lets the person to have the flexibility of planning ahead for other living needs through debt consolidation. Outstanding loan amounts, credit card bills and other kinds of liabilities may involve paying high interest rates and expenditure. A home equity loan helps in paying off the entire debts and also allows keeping some cash in hand. This leaves the person with high earning balance, which is got after the deduction towards monthly repayment of home equity loans. Hence home equity loans are said to be the best method for consolidating loans with higher interest rates.

Home equity loan provides an opportunity for the house owner to borrow money by producing collateral in the form of pledging the house. The loan is obtained without any strain even if the applicant has a bad credit because the lender views it very safe to provide loans having the house as collateral. The money borrowed is also more making it very useful to clear off debts with higher interest rates.

The home equity loan comes with a lower interest rate than any other unsecured loans. The repayment term and the amount to be paid every month is known and budgeting can be done accordingly as it can be got with a fixed rate of interest. The home equity loans repayment term ranges from five years to twenty years. It provides the flexibility to consolidate debt and fits the budget. If the debt consolidation balance is more then the person can go for a longer repayment period plan as it will provide lower monthly payments so that other living expense needs can also be met along without difficulty.

Home equity loans are easy to obtain. To qualify for home equity loans a reasonable credit score is required along with a sufficient earning potential to handle the additional debt. Since a home equity loan is a second mortgage another payment will be added to the debts. With the help of debt consolidation the second mortgage with a lower payment will replace all the other debts making the same amount of debts to be handled easily. Home equity loans come with a adjustable rate mortgage or fixed rate mortgage. It is upto the person to decide the kind he would need. The person can get even more amount of equity loan than the amount required for debt consolidation.



HARRIS

Susan Jan asked:


Your home is your biggest asset. It does not just provide you shelter; it also comes to your aid when you are in financial distress. The equity of your home, built over the years, can be used to obtain loans by acting as the collateral. You can find two types of home equity debt, namely in the form of home equity loans and also in the form of home equity lines of credit otherwise known as HELOCs. Both of them are described as second mortgages, because just like the primary mortgage, the equity loan is also secured by your property. But unlike the first mortgage, the equity debt is repaid over a shorter span of time. The first mortgage is usually repaid over a span of 30 years, whereas the equity loan is usually paid within fifteen years. However, there are exceptions and the repayment period may be as short as 5 years and as long as 30 years.

The growing popularity of these type of loans generally coincides with the recent surge in property value and relatively lower rate of interest. Thus more and more homeowners are turning to these loans for managing their personal debts. Other advantages of the home equity loan also include lower interest rate and tax deductions, making this mode of debt even more popular.

So far as the equity rate of interest is concerned, it is slightly higher than the first mortgage, but considerably lower than credit card loans or other consumer loan interests. Because your property is used as the collateral in equity loans, lenders consider them as secure as the first mortgage.

The tax deduction feature may be the biggest reason behind the huge popularity of home equity loans. Mortgage debt comes with attractive tax savings compared to lets say consumer loans, thus it is highly cost effective to consolidate your other debts with this loan and enjoy lower interest rate plus tax deduction benefits at the same time.

With these benefits, namely considerably low rates for equity debt and tax deduction on the interest payments, it is no wonder that a number of homeowners are utilizing the equity of their homes to meet further expenses and debts. True, it is a mortgage on your precious home, but if you are able to pay back the entire amount within a short span of time and you have stable income, home equity loan is a good option for much needed credit.



STEVIE

Joseph Kenny asked:


Cash can be hard to get, at times, and the debt can pile up, but if you own your own home it may be much easier than you think. A home equity loan allows you to take out a loan based on the built up cash value of your home. Here is what you need to look for in order to get a good deal on a home equity loan.

How It Works

A home equity loan is worth the amount of money that you now have invested in your house. For instance, if you house is worth $250,000 on the market, and you still have $155,000 on your existing mortgage, then you have an equity value of the difference – $95,000, in this case. That means that many lenders would be glad to give you a loan worth up to $95,000, as a second mortgage, or home equity loan.

Two Kinds of Mortgages

When you apply for a home equity loan, there are two kinds that you might get. The first kind, called a home equity loan, simply gives you the money – like any other loan. You are free to use the money as you want. The other kind is called a home equity line of credit, often referred to as a HELOC. Both of these are also referred to as second mortgages, since they are secured by the house itself.

The Simple Home Equity Loan

A home equity loan, or second mortgage usually is tax deductible, and is often based on the entire amount of the equity of the home. Generally, it is at a higher rate than the first mortgage, and usually has a maximum of 15 years to pay it back. Many homeowners use a balloon payment with this type of mortgage, or a large payment that is due at the end, in order to keep their payments low.

Line of Credit

This type of home equity mortgage gives to the homeowner a credit line that they are free to draw on – when needed. The ceiling amount is pre-approved by the lender, and then they are free to draw out money as they need it – or if they need it. Up to 100% of the equity value can be borrowed, and interest is only paid on the amount borrowed. The rate of interest, though, will vary, depending on what the rates are at the time you withdraw any money. These loans are generally held open for up to 30 years.

Like with any other loan, you need to take the time to shop around in order to ensure that you get the best deal. Not only should you compare interest rates, but also the various fees that are involved. Separate the actual loan from the fees and compare them other loans – fee against fees and loan costs. Do not make the assumption that since the home equity loan has no closing costs, that they are not in there somewhere – they are.



REGGIE

Dina Wilson asked:


Your home may yield a much comfortable option to avail a financial help. The equity of your home can be used to arrange a good sum for your needs. You can find this option very comfortable; as such borrowers are always preferred for granting financial help. The equity of the home is used as collateral and you are provided with a low cost financial grant. You can avail these financial help in the form for home equity loans.

Home is one of the preferred options that are used to avail a loan. Usually your home has some obligations towards the lender and not free for its total value. So, when you need a further financial grant the equity of the home is used as collateral. The equity of a home is that value which is left after total obligations with a home. This means equity is the real asset for you when you go for loan against your home.

Home equity loans can be used for a number of purposes you have. You can invest the amount on buying a car, renovation of the home, wedding cost, luxury holiday and debt consolidation.

Amount is not a matter of constraint with Home Equity Loans. It is totally dependant on the equity’s value of your home. You can avail up-to 100% of your equity’s value as amount. However, the range of amount that is generally provided with the home equity loans vary from £ 3000 to £ 100000. For the repayment you always get a convenient schedule for it. Here, you are provided with a long stretched repayment durian that can be of up to 25 years.

You always get a fair rate with home equity loans. The rate of interest is lower to other loans. You can also find a differed rate of interest with different lenders. So, you can conduct an online comparison to find the best option. Several lenders are providing services online to reduce the hassle at processing.

You can avail the home equity loans even if you have bad credit. Borrowers with CCJs, IVAs, arrears, defaults, etc. are not deprived for this loan. However, you can be charged with a somewhat higher rate of interst for this.

You always need a loan that incurs a low cost for you. With the home equity loans you find it easily. Moreover, the equity of the home increases with the market value, that eventually reduces your burden to a considerable level.



GEORGE