Home Equity Loans – second mortgage

Brian Jenkins asked:


Are you willing to risk your home to finance your business? One way to infuse your business or startup business concern with cash is by tapping the equity in your home. Is it a smart move? The answer depends on a number of different factors.

Financing a Business

One of the biggest stumbling blocks for a new business owner is acquiring financing for the early costs of establishing the business. Unless you have an established banking relationship or collateral to put down, few banks or lenders are willing to make a loan without a personal guarantee of some sort. It makes sense for a homeowner to turn to their largest asset as collateral. A home equity loan or line of credit is often the easiest way for a new business owner to acquire a sum of money that can be used to fund their business startup.

The Case against Home Equity Business Financing

Financial experts almost unanimously warn against using your home as financing for a business. It’s a risky move. If your business fails, you could be putting your home in danger. Since most entrepreneurs begin a business with the intent of supporting their families, does it really make sense to put your family’s biggest asset at risk?

On the other hand, your home is the biggest asset. Using it as collateral can be a very cost-effective way of financing a new beginning. Home equity loans often carry the lowest rates of interest of any other type of loan. Add to that the fact that many banks will require a personal guarantee for a business loan to a startup, and the effect is about the same. You’ll still be personally liable for paying the money back if your business fails.

The trick is to borrow smart. Before you decide to put your house on line to finance your business, do a bit of soul-searching and a lot of research. Here are some factors to consider before you decide to put your home up as collateral for a business loan.

1. Are you counting on the success of the business to pay back the loan?

Keep in mind that most business concerns do not turn a profit within the first year. Can you make payments on a home equity loan for a year without tapping business profits? If you can, then a home equity loan may be a good option for you. Even if the business fails, as long as you know you can make the payments on your loan, your home is safe.

2. Is a home equity line of credit an option?

A home equity loan makes sense if you need a chunk of money to purchase equipment and pay starting expenses. A home equity line of credit has a number of advantages over a closed-end loan under some conditions. While you may be paying slightly higher interest rates on a line of credit, one of the biggest advantages is the revolving feature. In other words, when you pay back money on a line of credit, it becomes available for you to borrow against again. A second advantage is that you’ll only be paying interest on what you actually owe. A home equity line of credit for business purposes is a good way to have cash in reserves for emergencies without having to pay interest on it until you use it.

3. Do you have an exit plan?

One of the biggest failings for most business owners is that they fail to plan for failure as well as success. We all hope that our businesses will be wildly successful, and it’s easy to make big plans based on that dream. But there’s a real danger in not planning what you’ll do in case of failure. At what point will you decide that enough is enough, and what steps will you take to get out with the least possible damage? Deciding when to call it quits can save you from disaster if the business doesn’t fly as high as you hoped.

4. Should you tell your lender that your loan is for business?

While home equity loans can generally be used for any purpose, including funding a new business, some loan experts recommend against volunteering the information to your lender. They may feel obligated to direct you to the commercial lending arm of their institution if that’s bank policy. If, on the other hand, you are asked directly, it’s best to be honest. Lying about your purpose for the loan could be construed as misrepresentation and open you to charges of fraud. Misrepresenting yourself could also negate the loan and call it due immediately.

The long and short of it is this: your home is probably your best source of funding for your business in the early stages. If you do decide to use a home equity loan to finance your business, be sure to think it through and safeguard your home before signing on the dotted line.



THERON

James Copper asked:


A home equity loan is a popular and attractive source of borrowing for thousands of people. Part of the reason people think first of a home equity loan when they need a substantial sum of money is that home equity loans are marketed extensively, with advertisement in every medium.

Lenders love home loans because they are highly risk free. Therefore, a home equity loan is easy to get and offers one of the best interest rate of any type of high end loan.

A equity loan is attractive for consumers, not only because of the low interest rate but because that interest can be deducted from income taxes. The outlook isnt completely rosy for consumers who are considering a home equity loan, however.

With any home equity loan you can borrow only up to 80 percent of the equity youve accrued in your home at the time of your loan application. If, for example, your homes current market value were 150,000 and the balance on your mortgage was 70,000 you could borrow 80 percent of the 80,000 equity, or 64,000.

Consumers should not make the decision to take out a home equity loan lightly. Nor should they borrow to the maximum 80 percent just because they can. Borrow only what you have to have.

Not only will this save you money in the long run but a loan officer who sees you being foolish about your willingness to put yourself in debt and your home at risk may think twice about your having the responsibility to pay back your mortgage – and on time.

Sometimes a home equity loan is used foolishly for a vacation or toys such as boats and other things that the consumer could really do without. The borrower assumes that their home will appreciate in value over the term of the loan so it really isnt like borrowing or paying interest, is it?

What if the home doesnt appreciate? What if the local mill or factory or other major employer closes down and the town loses a big chunk of property taxes and people move it and then the retail shops lose money and so forth and so forth. If you dont live in the Mid-Atlantic States or the rust belt talk to people who did or do. Hear what they have to say about the likelihood of this occurring.

No matter where you live downsizings, mergers, company closures, layoffs and buyouts are commonplace. There is just no way to predict that your home will appreciate, your job will be secure and youll be financially better off at the end of the loan and throughout the life of the loan.

A home equity loan, while often a wise thing, and a necessary action, shouldnt be taken on for frivolous desires.

There are occasions, such as lowered home mortgage interest rates and to get out from under high interest unsecured loans such as credit card debt when a home equity loan can save you money and improve your credit standing. When this opportunity arises, assuming you have the equity and can afford the payments, a home equity loan can be a very wise decision.



EVAN

Ray Tolley asked:


In this article, we’ll cover the benefits and disadvantages of home equity loans, home equity lines of credit (HELOCs) and personal loans. Whether you’re looking for funds to finance a major expense or simply pay down consumer debt, this article can help you decide what type of financing is best for you.

Home Equity Loan

* Best for: Major, unexpected expenses or large investments.

* Not for: Ongoing or smaller expenses.

How it works: A home equity loan is like a mortgage – the borrower is given a lump sum of money up front and begins paying interest and principal payments right away to work off the debt. The amount of the loan extended to the borrower is based on how much equity has increased in the home after appreciation and mortgage payments.

* Pro: Home equity loans typically offer a lower, fixed interest rate than HELOCs and personal loans. This benefits the borrower over the term of the loan as well as in the short term.

* Con: Borrowers have to pay interest on the full balance right away.

Home Equity Line of Credit (HELOC)

* Best for: Ongoing expenses like major renovations, college tuition or having a baby.

* Not for: Single, major expenses.

How it works: A home equity line of credit is secured by the equity in your home, and you can draw on it as you would using a credit card or savings account. Typically, the rate is adjustable – meaning it can be changed periodically depending on financial market trends – and you’ll make interest payments on what you borrow until the term of the line of credit is over.

* Pro: You only pay for what you borrow, and these loans are often easier to qualify for and faster to obtain than home equity loans.

* Con: The interest rate is adjustable and often higher than a home equity loan. When shopping for a home equity line of credit, look for a low permanent rate.

Personal Loan

* Best for: Small single expenses like a new car or small business investment.

* Not for: Ongoing living costs, major projects like home renovations.

How it works: A personal loan is a one that is offered by the lending institution and is often secured by the piece of equipment (e.g. a car) or property (e.g. business) that you’re using the loan to purchase. Typically, personal loans are smaller and can often be obtained in the form of a line of credit.

* Pro: Simple application process without sacrificing home equity or risking the home itself.

* Con: Without the security of home equity, the interest rates on a personal loan are often higher, so it is advantageous to pay off the loan as quickly as possible.

In short, whether you obtain a home equity loan, a HELOC or a personal loan will depend on why you need to borrow the funds, the kind of interest rates you can afford and your own current financial situation.

Remember, always shop around for the lowest interest rate! Doing so can save you hundreds – if not thousands – of dollars over the life of the loan.



JAMAR

Dina Wilson asked:


You may have heard the term home equity loan but are not really sure whether this type of loan will work for you. The first step is to understand the concept of home equity.

Equity is the worth of your home after reducing the amount to be paid for your home loans. That is in simple terms if you sell your home, the equity will be the amount left in your wallet after paying off the mortgage amount.

These types of loans help you to get a fresh finance without considering of refinancing options. Also the home equity loans can be taken to clear off the home loan also.

Many of you like the idea of taking out a home equity loan when they need fund to a home improvement or make some other type of purchase.

In the case of home equity loans you will get finance with much lower interest than many other options available. These loans are hence feasible for all types of people to fulfill their needs.

You can use the home equity to take a home equity loan or a home equity line of credit. These two terms are different. A home equity loan provides you with a one time lump sum of money as a loan. You can repay this amount with a minimum interest over a period of time.

A home equity line of credit (HELOC) is more similar to a credit card. Instead of receiving the sum of money at one time you will have the ability to borrow up to a specified amount of money for the duration of the loan in this case.

There are many factors which controls your decision on home equity loans. Interest rates, loan amount and repayment period are the main factors. If you choose for long term repayment, you can manage a lower interest rate.

Home equity loans are suitable for anybody for any purpose as these loans come with less interest rate. Also these loans are good options for the people with bad credits, as the lenders are willing to issue loans on the security of your worthy home.

Home equity loans are one of the best options for house owners to meet all their requirements.



CLEO