Heleigh Bostwick asked:




If you are thinking about undertaking a major home improvement project or debt consolidation for those mounting credit card bills, then perhaps it’s time to consider a home equity loan. While the two most common home equity loans are the home equity loan and the home equity line of credit (HELOC), there are a couple of other mortgage loan options as well including the 125% loan and cash-out refinancing. When comparing home equity loans several factors should be considered such as whether it’s a fixed or variable interest rate, if you have good or bad credit, which affects the interest rate of the loan, how much equity you have in your home and how much money you need and for what purpose, and which loan offers monthly payments you can afford.

What is a Home Equity Loan?

A home equity loan allows a homeowner to obtain cash in the form of a loan or line of credit in return for the equity built up in their home. Equity refers to the difference between the original loan amount on the mortgage and what the home is currently worth. For example if a home with an original mortgage loan of $100,000 is now worth $150,000 the amount of equity in the home is equivalent to $50,000.

Homeowners can benefit from second mortgages in several ways. Home equity loans generally have a lower interest rate than other types of loans and since most homeowners already have some equity built into their homes, they are a convenient and easy source of cash. There are also tax advantages in that the interest is tax deductible unlike credit card or loan interest.

What Kinds of Home Equity Loans are Available?

A home equity line of credit (HELOC) or home line of credit is a variable rate loan. Monthly payments vary according to the interest rate, which corresponds to the prime rate set by the Federal Reserve Bank. With a HELOC, homeowners are pre-approved for a specific amount of money and use the loan like a line of credit, withdrawing cash as it is needed. Interest rates (and monthly payments) often start off low but eventually end up rising.

In contrast, a home equity loan offers homeowners a lump sum payment with a fixed interest rate and loan terms ranging from 5 to 15 years. Homeowners pay the same amount of money every month for the duration of the loan. Both are considered second mortgages, and as with a conventional mortgage loan, both home equity loans and home equity lines of credit have closing costs associated with them. According to Don Taylor, PhD, CFA, CFP, a columnist at Bankrate.com, if you need money for a big-ticket item or single home improvement project go with a home equity loan. If you need money on a continuous basis and don’t mind the fluctuating interest rates, go with a HELOC.

The 125% loan is a 2nd mortgage loan option in which homeowners can borrow up to 125% of home’s value. For example, if your home is worth $100,000 and your first mortgage is $95,000, you can borrow $30,000, for a total of $125,000. The total of the first and second mortgages combined cannot exceed the appraised value of the home however. A 125% loan is useful when a homeowner needs more cash than can be obtained through a conventional home equity loan. Cash-out refinancing refers to refinancing your home at a lower interest rate (either a fixed or variable rate) and getting cash out, providing cash to a homeowner to pay for home improvement projects or pay down credit card bills.

John

Patrick Lee asked:




This will be probably, the biggest financial commitment you will make so helpful guidance is essential. It is important not to over stretch yourself and plan that your future borrowing can be met and suits your needs.

Subject to satisfying the individual lenders criteria a lender may offer to lend money to purchase a property in the form of a mortgage. A residential mortgage which is a loan secured on your new home means that if you are unable to service the loan they own a large percentage of your home and can repossess that property if you are unable to service that loan correctly. You will only receive a mortgage if you match their lending criteria.

This is unlike a unsecured loan for example a personnel loan from a bank. There are many issues and components to a mortgage that should be understood. For example what is loan to value, early repayment charge, stamp duty, debt consolidation, self cert, disbursements, deposit and mortgage arrears. Take note that some mentioned are actual mortgage products and options which may not be included within a mortgage as a component.

You can potentially save a lot of money by choosing the right mortgage for you, insuring it is the most suitable mortgage to meet your current needs and circumstances. . But your mortgage is a long term commitment and the deal that you take out should match your requirements. For example if you plan to only live at the property for a while due to job transfer you may consider having a portable mortgage or a home loan without early repayment charges. If you redeemed the mortgage early high penalty could be charged. As guidance how an early repayment charge can apply for example by taking out an incentivised product such as fixed rate, discounted and capped rate these could incur early repayment charges after the incentive has expired.

Lawrence

~life sucks~ asked:


I need to borrow 25k. My bank doesnt give unsecured loans for that amount. I just bought my house and am pretty sure I dont have 25k equity in it. So, a second mortgage is out. Are there any legit companies out there that will lend that kind of money to a person with good (not excellent) credit? If need be I have a co signer with excellent credit willing to help me. The purpose of this loan is for debt consolidation. I just want to pay off all those credit cards, have one monthly payment and start over. Bankruptcy is not an option. My credit is decent and I want to keep it that way. Serious advise only please.

Susan