Home Equity Loans Make Financial Sense

The optimum word in “home equity loan” is equity. Start with the fair market value of a home, subtract the mortgages (first and second) and any liens against the property, and what you have left is the equity. This equity can be used as collateral to secure cash in the form of a loan or mortgage.

The amount borrowed is based on a percentage of the appraised value of the home. The percentage rate can vary from 75% to 125%. The length of the financing will also vary. The two main types of home equity loans are fixed rate loans and adjustable rate loans.

Fixed rate loan - provides a fixed amount of money at a fixed rate of interest, repayable in equal payments over the life of the loan. Fixed rate financing costs more in set-up fees and comes at higher interest than adjustable rate loans. But if homeowners stay put and interest rates go up, they will save money over a comparable adjustable rate loan.

Adjustable rate loan - the interest rate goes up or down according to the index upon which it is based. Adjustable rate loans will have a cap on how high the interest rate can go. Usually called ARMs (Adjustable Rate Mortgages), this type of loan has lower up-front costs and starts at a lower interest rate than fixed rate financing. This means lower initial monthly payments.

<b>Putting home equity to good use</b>
According to the Consumer Banker Association, the top ten reasons for getting a home equity loan are:

10. Vacation
9. Medical expenses
8. Business expenses
7. Household expenditures
6. Investment
5. Major purchase
4. Education expenses
3. Automobile purchase
2. Home improvement
1. Debt consolidation

Debt consolidation, the most popular reason people cash out their home equity, is a smart form of financing because of the money it can save. For example, say you owe $15,000 on a credit card that charges 17% interest. If you get a debt consolidation loan at 9% interest and pay it off in five years, you’ll save you over $30,000!

If you’re paying more than 15% interest on anything, you should seriously consider a debt consolidation loan. The right terms could drop your monthly payments by 35% - 50%, depending on interest rates, origination costs and tax consequences.

Even for people who have bad credit or who have filed for bankruptcy, a home equity loan is not out of reach. It can be a good way to make a fresh start. Websites like www.easyhomeequitymortgages.com help borrowers with bad credit get the home equity loan that best fits their unique situation.

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How to Get Low Rates on Home Equity Loan

A low rate home equity loan is a good way to get some serious cash in a hurry without risking everything in the process.  This method of obtaining a loan is gaining wide spread acceptance because there is very little risk involved.  This comes with the fact that the money is coming from the funds that you have already put into your home and therefore is actually your money if you think about it.  This is why there is so little risk involved and it is easy to get the loans because you already have a proven track record of paying and they are doing nothing more than cashing out what you have already paid in. 

There are a few things that you should do to make sure that you are getting a low rate home equity loan.  First and foremost you should be sure to read over the agreement carefully before signing.  This is common sense but many would be surprised to know how many people just sign and take the companies word that they are getting the best.  Before you know it you could be involved in something that is above all else, bad.  This can mean losing the home that you have worked so hard to pay for and that will spell disaster.  Of course there is little that anyone does not know about loan companies, they are after their money and that is what really matters. So you should make sure that the low rate home equity loan that you are signing up for is going to stay at the rate that you are signing up for. In some cases the companies reserve the right to raise the rate as they see fit and that can mean a good many bad things.

Of course the low rate home equity loan should also be something that you want to receive. There are several lenders out there that are known as predators.  These types of companies will make attractive offers that you did not ask for and in the end they will talk people into cashing out when they really have no reason to do so.  In these cases the homeowner is the one that loses.  These companies will charge the highest fees in the business and make it very hard to pay back the loan.  In the end they will end up owning the home and you will have nothing to show for the years that you paid in.

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Home Equity Debt Consolidation Loans - 3 Things To Know

Decided to consolidate your debt with a Home Equity Loan? That may be a very smart idea! Consolidating your debt allows you to make just one monthly payment, and home equity loans tend to have low interest rates and tax perks too, which could save you money. But before you borrow from the equity in your home, remember these three things:

It's not available to everyone.

Just because you "own" your home doesn't mean you'll be able to get a Home Equity Loan. The equity you have equals the value of your home minus the amount you still owe on it. So if you only purchased your home recently--or home values have fallen in your neighborhood--you might not have any available equity. Moreover, a lender will also assess your credit and financial situation--such as your credit score, current employment and income--before approving your loan application. Although it's a lot easier to get approved for a home equity loan than other types of loans, some borrowers may not qualify.

Your home is at risk.

With a Home Equity Loan, your house is collateral for the loan. So if you have problems making payments, the bank or lender can actually repossess your house. In general, you should only borrow from a home equity loan for debt consolidation if you're absolutely certain that you'll be able to make the monthly payments.

You may not save as much as you think.

People assume the interest they pay on a Home Equity Loan is tax deductible, and in most cases they're right. However, there are some states in which Home Equity Loan interest is not tax deductible, so check out the rules and regulations in your area before you sign up for the loan. Also, watch out for fees, charges and other extra costs that may be attached to your loan. Paying lots of points and fees could mean that you're not saving as much as you think with your Home Equity Loan.

Although a Home Equity Loan can be a smart, low-cost way to consolidate debt, make sure you carefully research your decision--and weigh the pros and cons--before signing on the dotted line.

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Getting A Home Equity Loan After Bankruptcy

Obtaining a home equity loan after a bankruptcy can seem particularly difficult. However, it is by no means impossible for someone who’s willing to take time to explore options offered from different lenders. Here are some things you should know about getting approved for a home equity loan after bankruptcy.

The term “home equity loan” typically refers to a second mortgage (a lien that is in secondary position to a first mortgage). If the borrower defaults on a loan, the lien holder in first position is the first to be repaid and any interested parties (e.g. second mortgage lender, tax collectors, mechanics’ liens) will be compensated in the order that they appear on the title or deed of the property. Because of that, lenders that hold second mortgages assume a higher risk than those that hold first lien positions.

You will almost certainly be looking for a lender that specializes in “sub-prime” or “non-prime” loans. There is no shortage of sub-prime lenders, however, with current trends showing the sub-prime sector of the mortgage industry to be increasing exponentially each year.

One of the most important aspects of obtaining a home equity loan (particularly after a bankruptcy) is the amount of equity you are seeking to draw from your home’s value. The lender is going to be primarily interested in the Combined Loan-to-Value ratio, or “CLTV” of your new loan. The higher the CLTV, the higher the risk from a lender’s point of view, and whenever the risk increases, so does the interest rate.

You should know your credit score if possible, as that will be a large factor in the percentage of equity the lender allows you to tap into. If your credit score is above 620, you have a good chance of being able to access 100% of the equity in your home, even after a bankruptcy.

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Home Equity Loans Online – Easy, Quick Application Process

Applying for a home equity loan has never been easier. Today, many mortgage lenders have online sites which allow you to complete an application and receive a response within 24 hours. Those hoping to acquire a home equity loan should consider submitting an online application. The process is convenient and simple.

Purpose of Home Equity Loans

Home equity loans are ideal for large purchases or expenses. Typically, people attempt to get approved for a personal loan when they need extra cash. However, getting a personal loan is extremely difficult. For the most part, financial institutions such as banks and credit unions prefer applicants with an exemplary credit history. If your credit score falls short of their criteria, your application may be denied.

With a home equity loan, your home’s equity acts as the collateral. Because the loan is protected or secured, mortgage lenders and financial institutions willingly approve home equity loans to both good and bad credit applicants.

How to Apply for Home Equity Loan?

Homeowners may apply for a home equity loan by contacting the lender of their first mortgage. If you have a good payment history, these lenders are eager to approve your second mortgage. The goal is to keep you as a customer. In some instances, your current lender may approve you for a good interest rate.

In addition to contacting your current lender, homeowners should also obtain quotes from other lenders. A quote contains detail information such as estimated terms and rates. Quotes are based on your credit rating, income, loan amount, etc.

You have the option of contacting each individual lender for a quote. Completing an online quote request is the easiest and fastest method. There is no fee for obtaining a quote. However, once you choose a lender, you will have to submit an official application. Application fees range from $25 to $50.

Benefits of Using Online Mortgage Brokers

Using an online mortgage broker is the best way to obtain multiple quotes from various lenders that offer home equity loans. Shopping around for the best home equity rate is wise – especially if you have bad credit. Brokers have the means to locate lenders that offer comparable rates to individuals with a low credit rating. Upon completing a quote request, brokers will email you several loan offers within minutes. This way, you find the best rate and terms.

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Home Equity Loan : Loansmagician

Real estate prices across the country have skyrocketed in the last five or six years. Low interest rates, combined with a lack of trust in the stock market has led to a tremendous inflow of capital into real estate. To put that in perspective, take into account the median household income, which is a little over 44,000,dollar and compare that with the national median home price of 216,000 dollar, a very high multiple. Of course, in many metropolitan areas ( http://www.ixs.net )  where a large fraction of the nation’s population lives, the rise has been even more spectacular. San Francisco has seen the median home price rise from 395,000 dollar in 2000 to 713,000 dollar in early 2005

For those who did not get in at the right time, the situation is lamentable, many others, on the other hand, find themselves sitting on potential gold mines – in many cases they have witnessed the doubling, trebling or even quadrupling of their investments in a matter of a few years. Walking and sleeping on land that has appreciated under your eyes is a satisfying experience, and some people are quite happy to count their chickens without wanting to cash-in on their gains. Others, for whatever reasons want to enjoy their newfound wealth. Home equity loans offer an opportunity to do just that.

The fact that property prices have risen means that more Americans than ever before are eligible for home equity loans. Let me illustrate that by an example – say you bought a home for 300,000 dollar five years ago, putting down 20% (60,000 dollar) at that time. If you have a typical thirty-year fixed mortgage then you have not made a significant dent in the principal (in this case the loan principal is 240,000 dollar) in the first five years. Now suppose, quite realistically in many cases, that the house value has appreciated from 300,000 dollar five years ago to 500,000 dollar today. In this case your equity in the house would have jumped from 60,000 dollar (your down payment) to 260,000 dollar (down payment plus unrealized capital gains). You would be eligible to take a loan against that increased equity. Most institutions are willing to extend home equity credit for upwards of 50% of total equity in the home.

Now that we have established that a rising real estate market has produced many more potential candidates for home equity lines of credit, let us show why this is a financially savvy way of consolidating loans or of securing financing. Whether the reasons are personal, such as Ferrari you have been drooling over, or for your home business, home equity loans are usually the best first option for obtaining liquidity. First, home equity loans take advantage of tax breaks that the federal and state governments give all homeowners – all interest payments made to service the loan are tax exempt.

This advantage alone warrants serious consideration – a family in the 30% federal income tax bracket will stand to save a substantial amount on a typical home equity loan. The implications of the tax advantage are such that many people with no need for additional credit take out home equity loans and invest elsewhere just so they can take advantage of Uncle Sam’s generous handout. Second, home mortgages are handled a little differently from other consumer loans because of two reasons. First, the loan is “secured” by a tangible asset (i.e. the house, comprising of the value of the land and the material with which the house is constructed) and second, there is a huge industry that deals exclusively with home mortgages and home loans, resulting in a fiercely competitive environment. To the consumer, this results in significantly lower interest rates on home loans.

So, let us recap the win-win situation for a home equity line of credit. Rising real estate prices have made more people eligible for bigger loans, in many cases significantly bigger loans than ever before. Relatively low interest rates, thanks to the Fed and a competitive home mortgage industry has kept the cost of borrowing low. And finally federal and state tax breaks on home loans further reduce the cost of borrowing.
If you are thinking of borrowing money and you are a homeowner, be sure to consider a home equity line of credit before pursuing alternative methods of financing.
For more information about Home Equity Loan visit  http://www.loansmagician.com/home-loan.php

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Home Equity Loans vs Home Equity Line Of Credit - Which Option Should You Choose?

Tapping into your home equity loans qualifies you for low rates with the potential benefit of tax write offs. Lenders have developed a number of financing solutions for you, each with their own pros and cons. Home equity loans provide low rates with some closing costs. On the other hand, a home equity line of credit waives closing costs and application fees for flexible lending amounts at slightly higher rates.

Benefits Of A Home Equity Loan

For those wanting to borrow a large amount for several years, a home equity loan provides the cheapest financing. By paying closing costs, you can lock in a low fixed or adjustable rate. You also can select terms that help you get you a reasonable monthly payment.

Home equity loans usually don’t have any limit balances, early payment, or annual fees. Structured like a regular mortgages, interest is primarily paid at the beginning of the loan period.

Benefits Of A Home Equity Line Of Credit

With a home equity line of credit you can borrow amounts when you need to with an issued credit card. With a predetermined credit limit, you have flexibility of when you can draw on funds. So you can pay off the balance one month, and then borrow a thousand the next.

Interest is only paid on the amount you borrow. Usually, the minimum payment is only the interest charged for that month. Most lenders also offer the option of converting your line of credit into a second mortgage when you are ready to make regular payments.

A line of credit doesn’t usually have any application fees. But there may be fees for carry a minimum balance or closing the account early.

Choosing The Right Equity Financing

Home equity loans are designed for large lump sum payments, used to pay off credit card debt or pay for a remodel project. Terms extend for several years to make the loan payments manageable.

Home equity line of credit is best for short term financing. Interest payments can be kept to a minimum by paying off balances early. Opening a line of credit also gives you the option of available credit without having to pay large applications fees.

No matter which type of financing you settle on, make sure you compare several lenders to get the best deal on rates and fees.

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Getting A Home Equity Loan Without Perfect Credit

Getting a home equity loan without perfect credit can help you pay for home repairs, consolidate debt, or provide a college education. Even with poor credit, you have several factors going for you, including your equity investment. And with online lenders, you have several choices when it comes to lenders. Being a smart shopper with your terms will ensure that you get a good deal on your second mortgage no matter what your credit score.

What You Got Going For You

Maybe you have a couple of bad marks on your credit, but remember the positive factors you do have. For one, the equity in your house can secure a potential loan at lower rates than other forms of credit. You also have probably made several on time bill payments.

Unless you have looked at your credit score lately, don’t assume you have bad credit. There are hundreds of factors that determine your score besides payment history. And time will eventually erase all your credit mistakes, even a bankruptcy.

If you are concerned about your credit history, take a look at your credit report. You can verify the information is correct and know where you stand credit-wise.

Sub Prime Lenders Or Not

Sub prime lenders offer financing to those turned away by traditional lenders. With their slightly higher rates, they accept higher risk loan applicants. However, traditional lenders are also dealing in sub prime lending.

Before you choose one lender, start asking for loan estimates from both sub prime and traditional lenders. Be honest with your credit history to get realistic quotes. You may be surprised who offers you the better deal.

Pick Better Terms

Rates and closing costs determine the majority of the cost of a loan, but terms are also important. For example, long term loans delay payment and increase your interest charges. However, they offer low monthly payments which can fit with your current budget needs.

You can also negotiate changes in caps, rates, and fees. You may also want to keep the option open to refinance when your credit score improves.

No matter which home equity loan lender you choose, make sure they offer you a financial deal that fits your needs. Otherwise, you should keep looking for a better offer.

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Poor Credit Home Equity Loans - Avoiding Home Equity Loan Scams

Obtaining a home equity loan makes it possible to payoff credit cards, finance a home improvement project, etc. In fact, one of the benefits of homeownership is being able to tap into your home's equity for large expenses. Many lenders offer great rates on home equity loans and lines of credit. Yet, homeowners should beware home equity loan scams that place them at risk of losing their home.


Understanding Home Equity Basics


A home equity loan is essentially a personal loan that is secured by your home's equity. The amount you are able to acquire will vary. For the most part, you are able to obtain a loan up to the amount of your home's equity. However, lenders will usually review your credit and income to ensure that you qualify for the requested amount.


Home equity loans are beneficial because the funds may be used for a multitude of purposes. If you are looking to payoff credit card balances, a home equity loan will help you achieve this goal. Nonetheless, exercise care when applying for such a loan. Because your home serves as the collateral, failure to maintain regular payments will result in foreclosure. Sadly, some lenders are betting on your inability to repay a home equity loan.


Common Home Equity Loan Scams


Lenders use an array of fraudulent schemes to steal your equity. For starters, there are lenders who cleverly convince homeowners to borrow more than they can afford to pay.


Moreover, a lender may encourage homeowners to exaggerate their income in order to qualify for a larger amount. Instead of having your best interest in mind, these lenders knowingly position their clients for defeat. Hence, when you can no longer afford the payments, the lender forecloses.


If applying for a home equity loan, it is important to read the loan agreement carefully. If possible, have the contract reviewed by an attorney. Some home equity loans involve a large balloon payment at the end of the loan term. The typical homeowner cannot afford to pay this amount. Regardless of whether you maintain timely payments, the home equity lender may claim your home if you are unable to make the final payment.

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Assumable Loans and Resale Value

The value of an assumable loan comes from two sources. It is often easier for the buyer to qualify when assuming a loan and the payments may be lower than for new financing. However, its value may be limited by two important factors. If the balance of the loan is much below the asking price, the loan may not be worth much. For the buyer to assume, either a large cash down payment is requited or additional financing will be needed. This extra financing may be a loan provided by the seller. Second, if the rate on the existing loan is close to or above the going rate, there is little advantage to assuming it.


How do you know if your loan is assumable? An FHA or VA loan is likely to be assumable. A conventional loan is not likely to be assumable. Look in your loan contract for a “due on sale” clause. If it is there, the lender has the right to call in the loan when you sell the home. There are assumable conventional loans that require a slightly higher interest rate.
If you have an assumable loan at an interest rate below the market, you should get a higher price at the sale. Remember that when you repurchase, you will have to pay more for financing. A higher resale price compensates you for giving up favorable financing.


How much is the loan worth? Consider that, since the loan payments are lower, the buyer could pay a higher price and still make the same payments. Say you have a home that is worth $100,000. You have an assumable loan for $70,000 at 8% interest. There are 25 years left in the teim. A new loan for $70,000 at the prevailing rate of 10% and 30 years requires a monthly payment of $614.30. Your loan’s payments are $540.27. The monthly savings of $74.03 would service a loan at the market rate over 25 years for $8147. Therefore, a buyer who assumes the loan could borrow an additional $8000 and still enjoy lower payments than by using totally new financing. Whether you could extract this amount in the sales price depends on market conditions. However, the assumable loan provides an important sales tool in any market.


If you think you may sell your home in the near future, you may want to refinance with a new assumable loan at a relatively high loan-to-value ratio. This will provide a form of insurance in case interest rates rise or mortgages become hard to get when you do sell.




This article may be published freely as long as you keep the below credits:
 Article by (Tommy Lee). For more info on Finance and Refinancing Mortgage loans, visit http://www.smartrefinance.net

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