The home equity loan can help you pay off debts as well as have some extra cash at hand! Consolidation is now a possibility With rising default rates and delinquencies, most people today are finding it increasingly difficult to manage their finances. From existing loans to credit cards to even medical expenses – the average cost of living seems to have skyrocketed in all quarters. That’s where a home equity loan can come to the rescue. Every month the prospect of having to pay multiple bills of varying amounts can be a huge difficulty. Not only is it difficult to keep track of all these bills and expenses, the cumulative costs can work out to be very high. With a home equity loan you can pay just a single bill every month. This will help you plan finances and get you more organized as well. Reduced interest rates Most of the time existing credit card debts, loan outstanding amounts and other liabilities can involve huge interest rates and high expenses. A home equity loan can actually provide a reduced interest rate. The best thing is you get the entire loan amount in a lump sum. This helps you pay for any expenses towards your liabilities. You also get some extra cash at hand. Tax savings A home equity loan has a tremendous benefit in that it provides for significant tax benefits. You get to deduct your interest amount if you have a home equity loan. This is if the home equity loan is being used for purposes like education, consolidation of debts or even for the improvement of the home etc. You can consult with a tax advisor to check the possibilities. Customized loan The best thing about a home equity loan is that you get to choose the type that suits your unique requirements. You can choose a home equity loan with a fixed or adjustable interest rate. The fixed rate will entail a designated monthly payment that does not vary with time. The adjustable rate will vary depending on market conditions. You can also have the option of getting an adjustable rate home equity loan with a rate cap that has been established beforehand. Free up cash With a reduced interest rate and longer payment period, a home equity loan can offer significant advantages. For example for starters, it frees up extra cash – so that you can utilize this amount for any home improvement modifications – like maybe doing up the kitchen, or getting new furniture etc. Suddenly getting a home equity loan seems rewarding because now you not only get to pay off all your debts, you also actually get some cash at hand to use for other important things!
Posts Tagged ‘home’
Why a home equity loan could be your answer to debt consolidation
December 30th, 2009The Use of Home Equity Loans – Wise or Not Wise?
December 30th, 2009Over the past few years many Americans have established lines of credit secured by the equity in their homes or have borrowed a lum sum amount secured by their home. For marginal borrowers this can turn out to be highly risky as it exposes these families to the loss of their homes.
Lenders tend to quickly change colors from friend to foe in times of financial crisis and will “take it away if you can’t pay”.
Prior to mortgaging or refinancing a home you should consider what your families finances would look like if one or more of your family members living in the home lost their job or came down with a serious illness.
How long could you keep the home payments current if there was an unfortunate long term loss of family income?
In spite of the dangers of refinancing or taking out a home equity loan there are times when it may in fact be wise.
Perhaps credit card debt has gotten out of hand. You can get a home equity loan at much lower rates, pay off the credit card debt, and lower your monthly payments, perhaps as much as by 50%.
A word of warning, however. You must not run up your credit card balances once again or you will end up in even worse financial shape than you were to begin with. The second time around trying to carry high credit card debt and a home equity loan payment may be more than painful. It may be financially fatal.
It would be far safer to avoid temptation by cutting up your credit cards and using a debit card instead.
There are other occassions when a home equity loan may be justified. Perhaps you wish to start your own business and are willing and able to take the risk that things may not work out as you plan.
Your home equity will likely be the cheapest source of start up capital that you will find other than going hat in hand to family members. For most families a “friendly” family loan is not recommended as the resulting strife that often takes place if things don’t go as planned causes painful family problems.
Even when all does go well you may get tired of listening to advice from your unofficial business partners.
Perhaps you wish to purchase an existing business, one that should earn you a good income for a long time to come. Again your cheapest source of capital would likely be a home equity loan.
In general, one should consider a home equity loan when the loan proceeds are used to very likely improve ones financial position. This would be a wise use of the loan proceeds.
One should use extreme caution in using a home equity loan to purchase additional consumer goods, say a large expensive flat screen TV set or a new SUV.
The worst example of the use of a home equity loan that I know of was a couple who took out a loan in order to go to the Superbowl. Just think of how much that Superbowl trip will really cost over the years
as interest payments are added in. What a terrible short sighted financial decision.
My advice. Use a home equity loan only to improve your financial position or to raise funds in a true emergency situation. Using a home equity loan to purchase things that will only lose value is a misuse of the loan proceeds that could cost you what is probably your most useful and valuable possession . . . your home sweet home.
Home Equity loan, Cashing in On Your Equity
December 30th, 2009This is a type of loan under which a property owner uses his residence as collateral security and can get prearranged amount against the property. The loan allows you to use into your home’s built-up equity.
Home equity is the actual difference between the amount your home could be sold for and the amount that you already owe on the mortgage. Assume that the market value of your home is $200,000 and you owe $70,000 on your mortgage, then you have $130,000 equity available on your home. Remember that if you have more than one mortgage taken on your property, then all of them have to be considered for calculating the outstanding dues.
A home-equity loan is a good way to borrow money for two main reasons:
1. The interest rate is one of the lowest loan rates a borrower can get.
2. The interest you pay on the loan is tax-deductible. Thus it is sometimes recommended by many to replace other consumer loans whose interest is not tax-deductible, such as auto loans, credit card debt, and medical debt with the Home Equity Loan.
Caution: If you don’t repay the debt, you can risk losing the home and be forced to move out. Do act with care and make sure you are able to fulfil the repayment terms.
There Are Two Types of Home Equity Loans
1. The standard home equity loan,
2. The home equity line of credit (HELOC’s)
In a standard home equity loan, a pre specified amount of money is loaned in a lump sum for a specified period of time and the same amount of interest is paid every month. It is also called a term loan, a closed-end loan or a second mortgage installment loan.
HELOC works similar to a credit card because it has a revolving balance. A HELOC allows you to borrow up to a certain fixed amount for a specified period of the loan which is set by the lender. During that time period, you can withdraw as much money as you need. As you clear the principal, you can use the credit again, like a credit card.
These loans are repaid in a shorter period of time than the first mortgages. They often have a repayment period of 5 to15 years.
The loan could be either a fixed interest rate or a variable interest rate.
Homeowners often use a home-equity loan for home improvements or debt consolidation or to pay for a new car or to finance their child’s college education.
