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

Josh Ramos asked:




If you’re wondering about home equity loans, the basics are pretty simple. These kinds of loans are secured by the equity in your house. In other words, if you have paid off at least a part of your home mortgage, then you have a certain percentage of ownership in your home.

You can borrow against this ownership and use the funds for a variety of reasons. Home equity loans were originally meant to be used for financing home improvements. However, they are now being used in many more situations such as paying off high interest credit card debt or financing a new car purchase.

Of course, borrowing against your house to buy a new car is not exactly the smartest thing you could with the funds. Paying off high interest debt, however, would be a wiser use of your funds.

Even so, it is important to examine your situation thoroughly before you make the commitment involved with a home equity loan. After all, if your current debt situation is a result of your lack of self control, you need to address the spending habits.

Otherwise, the home equity loan will be a temporary escape, but in the long run it will end up being just another loan. Always remember that these kinds of loans are still debt!

If you can make the commitment to control your spending, however, the home equity loans can be a valuable tool to help you get out of debt. Another point to consider is that with a home equity line of credit, the funds do not have to be spent immediately. Just like with a credit card, you can use the credit whenever you need it. If you don’t use it, you will not owe anything.

You may want to consider applying for a home equity line of credit even if you don’t see the immediate need for it. If you have a good job and a good financial history, you should be able to obtain this line of credit. If you have any financial catastrophe in the future, this line of credit can be very useful to you. Just remember to exert some self control and save the line of credit for when you need it the most!

Ralph

Katharine Norman asked:




Mortgage refinancing can make good sense if you want to make improvements on the house, pay those college fees, or pay-down higher-interest loans. As property prices have gone up and up, homeowners often find they have more equity than they ever dreamed of when they first bought. Richard Syron, CEO and Chairman of the Federal Home Loan Mortgage Corporation — or ‘Freddie Mac’ — says “more than a dozen years of sustained growth in housing prices have turned many middle class homeowners into millionaires; put countless children through college; and made the family home the most valuable egg in the American nest”. Maybe we can’t all be millionaires but, even so, “for the typical family, home equity accounts for the bulk of their wealth,” agrees Frank Nothaft, chief economist at Freddie Mac.

It all looks good, so far. But now that you’ve started to look for that home equity loan — most likely a fixed-term second mortgage, or a line of credit — maybe you’re starting to wonder why home equity rates are generally higher than all those great first mortgage packages?
There are quite a few reasons. For a start, you’re comparing apples and oranges –they’re different breeds of loan, and the interest rates reflect the different features offered by each. But how, exactly, are those interest rates set? Frank Nothaft explains that “home equity loans are typically linked to the prime rate … many home equity loans have rates that are 1 percent or more above the prime rate” and, by comparison, “most 30-year first mortgages are typically below prime”. The interest rate for a typical home equity loan needs to take several factors into account: the risks to the lender, the duration of the loan, the flexibility offered to the borrower, and the amount of the loan in relation to the amount of equity available (referred to as the Loan to Value (LTV).

The first mortgage, of whatever kind, is just that — it’s the first lien on your property, and the first in line if you default on your loans. When you got your first mortgage you put your home up as collateral against the loan. If you can’t make the payments, the mortgage company can proceed with a collection action — in a worst-case scenario, you lose the house to pay off the loan. And, because it’s the primary loan, your first mortgage has priority in any collection action. Essentially, the mortgage company is confident that they’ll get their money back if you default. For a second mortgage, the situation’s different: whether it’s a conventional repayment mortgage or a line of credit (or any other kind of loan), it’s second in line if things go wrong. So that’s a bit more of a risk to the mortgage company, particularly if the value of your house depreciates, or you take out yet more loans.

And then there’s the time factor. The term, or duration, of a home equity loan is usually far less than that of a first mortgage. Most first mortgages are for a period of maybe 15, 20, or even 30 years. That’s because most people want to minimize their mortgage payments as much as possible, especially at the outset, and they’re in it for the long-haul. And, just think about it: while you’re making the payments, you’re paying interest, and you’re making the mortgage company money. You’re a good bet. That’s why, when it comes to first mortgages, companies compete with each other so aggressively to get your custom. And they pass that competition on to you, through lower interest rates.

A standard home equity loan is effectively a second mortgage, and can be a fixed or adjustable rate mortgage. The money is loaned in one lump sum, and payments are made over a pre-arranged duration — just like a first mortgage. But a home equity loan is typically for a short term, possibly only for a few years. Usually it’s for a specific purpose — home improvements, or paying of a debt — and the higher interest rate means most people prefer to pay it off as soon as they can, rather than mount up large amounts of interest. The mortgage company doesn’t have your custom for the long-haul, and it takes this into account when setting the interest rate.

Even so, this kind of mortgage can be far cheaper than the interest rates on credit cards or unsecured loans. As interest rates rise, pushed up by the Federal Reserve’s successive increases in the prime or ‘index’ rate, more and more borrowers are seeing the value of fixed-rate home equity options, in the 10-15 year range. Although these still have higher interest rates than first mortgages, homeowners have the best of both worlds: the comfort of knowing the rate won’t rise, and the ability to improve their quality of life by releasing the equity in their home.

With the other kind of home equity loan, the line of credit, you can draw cash whenever you want, up to your limit. When you pay money back, that credit is released again for you to use, immediately. In that sense it’s an “open account”, a bit like having a credit card, but with lower interest rates. This freedom to dip in and out of the loan can be a boon for the homeowner, who only pays interest on the amount owed, and nothing more — but it is more unpredictable, and less lucrative, for the mortgage company. So you pay that bit more for the flexibility of being able to use the loan as you wish, and that comes in the form of a higher interest rate.

But, given the ability to release your equity and use your wealth when and where you want, it can certainly pay to refinance. Don Taylor, of Bankrate.com, agrees, saying that a home equity loan, or a home equity line of credit (HELOC) can “allow you to restructure your debts or finance something that’s important to you,” and adds that both kinds of loan typically have much lower closing costs than a first mortgage.

Maurice

Richard Lowe asked:


Who doesn’t want to be relieved of paying a high interest rate in a monthly basis? The goal of home mortgage loan modification all about saving money. It is actually an option preferred by several homeowners. You might be asking how much money you can save as you settle with this option. Well, you should understand that it will depend on you. How much savings do you really want to gain? The following insights will open the possibilities on the reduction of your total monthly expenses by refinancing your home.

Refinancing a Mortgage Defined

Refinancing a mortgage means applying for another loan plan that will pay off your existing debt. As you avail of a new package, you will have to shoulder different terms and conditions. This option is meant to lessen the monthly interest charges that you have to pay for.

Why You Need to Consult an Expert

The mortgage brokers are the experts who specialize in home loans, refinancing loans, home equity loans, mortgage rate computation, and all other types of mortgages. They are the people with whom you can work with if you want to get the best deal out of refinancing your home. They have studied and earned their credibility through the years of serving the homeowners. It is also by consulting an expert that you get to learn the advantages and disadvantages of refinancing, your chances of paying for a lower interest rate, your home’s equity and cash out benefits, and many more.

You should also know the requirements, the qualifications to become eligible for refinancing, and the other types of loans that may fit your needs. Nevertheless, you will be able to save more time and money if you talk to the right person who knows everything about refinancing.

The Benefits to Enjoy with Refinancing

Mortgage refinancing means that you can save thousands of dollars, lessen the tenure of your own mortgage, heighten your cash flow, and offer you the low interest rates, among others. It is your duty to find the right mortgage broker who can advise you with everything that you can benefit from. Take note that an honest mortgage broker will always consider the potentials that will work to your advantage and lead you to the best deals.

Refinancing as a Money-Saving Opportunity

Generally, a new mortgage will convert your high interest payments into a lower one. This process will then provide you with every opportunity to spend less money on your monthly payments and save more.

Some homeowners decide to shorten the term of their loans. For example, if you refinance your 30-year-mortgage into a 15-year-mortgage, you get to pay lower interest rates. However, you will have to settle a larger monthly bill but the catch is that you are able to save more because you can pay off your debt in a shorter time. On the other hand, some homeowners change the mode of their interest rates from an adjustable rate into a fixed rate loan. Whichever is your choice, you must always be abreast of both the rewards and drawbacks of refinancing your mortgage.

Furthermore, home mortgage refinance packages let you consolidate your debts so that you don’t have to pay for more. The thing is, you allow yourself to save money because instead of paying different interest charges, you simply roll them into one and reduce the amount that you have to settle.



Edith