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Home Equity Loan – Understanding the Basics of Home Equity Mortgage

admin — Tue, 22 Dec 2009 01:35:18 +0000

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A home equity loan or home equity mortgage is an effective second mortgage on your home, taken out after you have developed some equity in your home. For example, if you purchase a home for $200,000 and you have paid $40,000 over the years against the loan principal and the market value for the home is now $250,000, you now have equity in the home of $90,000. Â Theoretically, you could apply for a $90,000 loan against the equity, but in practice, most lenders prefer to keep the loan at 80% loan to value or, in this case $187,500. Â In this example, a loan for $27,500 could be approved.
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Definitions
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Some of the definitions that you will need to be familiar with include equity, mortgage, interest rate, loan fees, loan type, principal and amortization. Â If you don’t understand the meaning of these words and others insist on an explanation from the loan broker or lender. Â You can also do the research yourself so that you are certain you understand the difference between an ARM and a fixed rate loan and why you should choose one or the other, depending upon your circumstances. There are some very good primer level books and classes on almost any subject you can name out on the internet including that of a home equity loan.
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Terms
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In the case of a home equity mortgage, the word ‘terms’ can mean ‘words’ or it can mean the length of time before the loan is paid off. Â A loan against the equity of your home often will have a longer term than a personal loan. Â You may see terms of 15 years, 20 years, even 30 or 40 year terms on the loan. Â Of course, the longer the term, the more money in interest you will be charged and the larger the percentage of funds you pay are for the privilege of using the money rather than for the money itself.
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Rates
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The home equity loan rates are also called interest rate or interest. Interest rates are usually structured in one of two ways, although there are other types of loans as well. Â The fixed rate loans set an interest rate up front and it remains in effect throughout the term of the loan. Â The adjustable rate mortgage loan has an interest rate that will vary according to a predetermined index or formula. Â For example the rate may be two point above prime rate, adjustable not more than twice every two years. Â These requirements will vary depending upon the economy of the time.
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Advantages and Disadvantages
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A home equity loan or home equity mortgage has the advantage of being a lump sum of money that you can use in any way you see fit–presumably legal. Â It has the disadvantage of increasing your debt loan and increasing the cost of money sometimes significantly. For example taking out was is actually a second mortgage on your home may raise your debt to value level to the point where private mortgage insurance is mandated by many lenders. Â This can add thousands of dollars to the repayment amount over the years.
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Home Equity Loan – Understanding the Basics of Home Equity Mortgage

admin — Mon, 21 Dec 2009 18:37:30 +0000

A discussion of the nature, benefits and operational methods of a home equity loan in simple, easy to understand language is helpful in deciding whether or not such a home equity mortgage should be acquired. A home equity loan or home equity mortgage is an effective second mortgage on your home, taken out after you have developed some equity in your home. For example, if you purchase a home for $200,000 and you have paid $40,000 over the years against the loan principal and the market value for the home is now $250,000, you now have equity in the home of $90,000. Theoretically, you could apply for a $90,000 loan against the equity, but in practice, most lenders prefer to keep the loan at 80% loan to value or, in this case $187,500. In this example, a loan for $27,500 could be approved. Definitions Some of the definitions that you will need to be familiar with include equity, mortgage, interest rate, loan fees, loan type, principal and amortization. If you don’t understand the meaning of these words and others insist on an explanation from the loan broker or lender. You can also do the research yourself so that you are certain you understand the difference between an ARM and a fixed rate loan and why you should choose one or the other, depending upon your circumstances. There are some very good primer level books and classes on almost any subject you can name out on the internet including that of a home equity loan. Terms In the case of a home equity mortgage, the word ‘terms’ can mean ‘words’ or it can mean the length of time before the loan is paid off. A loan against the equity of your home often will have a longer term than a personal loan. You may see terms of 15 years, 20 years, even 30 or 40 year terms on the loan. Of course, the longer the term, the more money in interest you will be charged and the larger the percentage of funds you pay are for the privilege of using the money rather than for the money itself. Rates The home equity loan rates are also called interest rate or interest. Interest rates are usually structured in one of two ways, although there are other types of loans as well. The fixed rate loans set an interest rate up front and it remains in effect throughout the term of the loan. The adjustable rate mortgage loan has an interest rate that will vary according to a predetermined index or formula. For example the rate may be two point above prime rate, adjustable not more than twice every two years. These requirements will vary depending upon the economy of the time. Advantages and Disadvantages A home equity loan or home equity mortgage has the advantage of being a lump sum of money that you can use in any way you see fit–presumably legal. It has the disadvantage of increasing your debt loan and increasing the cost of money sometimes significantly. For example taking out was is actually a second mortgage on your home may raise your debt to value level to the point where private mortgage insurance is mandated by many lenders. This can add thousands of dollars to the repayment amount over the years.

Home Equity Loans – 3 Tips to Smarter Borrowing

admin — Wed, 16 Dec 2009 19:36:35 +0000

There is no question that home equity loans have become the biggest tool for homeowners to get their hands on the cash they need. And used correctly, these loans are also a smart way to borrow needed funds for things like medical expenses, debt repayment and home improvements. With that said, here are 3 tips to help you in finding a great deal on a home equity loan.

1. Shop For Rates And Avoid Fees

Many home owners don’t realize that lending rates on loans are different. They mistakenly believe that all lenders will loan money at about the same interest rate. Nothing could be further from the truth.

Home equity loan rates could vary by up to 5% in some cases, and on a $100,000 loan that is serious money. Get at least 3 different loan comparisons before making a decision. Yes, that may take extra time, but it could be worth thousands of dollars. Thousands of dollars of your money.

Also, be aware of loan fees. Lenders should not be charging you for an application fee or an appraisal fee. Nor should they add fees into the loan amount. Where a lender may add on a fee is with a home equity line of credit. They may charge an annual fee.

2. Understand Tax Rules

Many borrowers mistakenly believe that interest on any home equity loan will be tax deductible each year. This just is not true.

Interest on loans up to $100,000 may be tax deductible, but any amount over that will not be deductible.

Also, in order to deduct the interest you will have to be able to itemize your tax return. Will you have the deductions to be able to do this?

3. Understand Your Home Is On The Line

Not only are you putting your home on the line in the event you are unable to repay your loan, but you are also sucking out your home’s equity. Be sure that you are not planning on moving in the next few years or you could be in financial trouble.

Be careful in using the money for home improvements. Ask yourself if you will be able to get the value back out of your home when you go to sell it. In some cases the answer may be no.

By following these tips you can make a smarter decision in taking out any type of home equity loan.