If you need to refinance, a home equity loan lest you cash in on the value you have built up in your home. The amount of equity is the difference between what you owe on your mortgage and what your home is worth on the real estate market. This option for refinancing is really great for homeowners who have been paying on their mortgage for quite some time and have a significant amount of the principal of the loan repaid. With a home equity loan, you can usually get about 80% of the equity as a loan.
The money you get through a refinance home equity loan is yours to do whatever you like. If you want to make further improvements to your home, then you are building up even more equity. There are some lenders that will approve a home equity mortgage loan where you don’t have to make any payments as long as you still live there. When you sell the home you have to repay the loan in full, plus interest of course. If you die, then your estate is responsible for the repayment.
As with a mortgage, your home is the collateral when you refinance. Loan payments have to be made each month, which could mean you have two mortgage payments to make. You have to make sure that you can afford this before you jump into it and the lender will require you to have an excellent credit record. If you default on the payment for the home equity loan, you could lose everything you have worked so hard for.
Many homeowners use the option of refinance in a home equity loan to consolidate all their bills. Then they use the total of the payments they were making each month to make the payment for the loan. Most of the time, this amount is much less than the total of all the other payments, giving you cash to work with each month. The rate of interest on a home equity loan is much lower than a normal loan and in some cases the interest may be tax-deductible.
When you want to refinance, a home equity mortgage loan has two options for you to choose from. You can have a fixed-rate loan where you make fixed monthly payments each month for a specified term. You can also have an adjustable rate line of credit with a home equity loan. If you choose the fixed rate option because you want to be able to budget each month, once you pay the loan in full, you cannot get another home equity loan. This is a one time thing. However, with a home equity line of credit, you can use the money over and over.
When you repay the line of credit, you can borrow money on it as you need it. You don’t have to have it repaid in full to do this and can use it as you see fit. You only pay the interest each month on the outstanding principal and you can pay it off in full whenever you want.
Posts Tagged ‘Loan Payments’
Home Equity Loans as a Source of Funds
December 23rd, 2009Home equity loans have become increasingly popular in the United States in recent years as home values have soared and home equity has rapidily and seemingly effortlessly accumulated. It has become common place for home owners to pull substantial equity out of their homes by using a home equity loan.
Perhaps it has become a bit too easy. Folks who use the equity in their homes to boost their living standards may well be setting themselves up for an eventual unpleasant day of reckoning.
If due to some unforeseen family economic disaster there is a loss of income and the family can’t manage their loan payments there is the risk of losing what is probably their most valuable asset — their home sweet home.
There are times when the use of a home equity loan is justifed and prudent. Perhaps you need the funds to put your children through college. The home equity loan may be the lowest cost funds available.
Perhaps you want to start your own business. The profit potential looks to be exceptional. You feel very confident that your proposed busines will be a success.
There are times when one has to go for it. If the equity in your home can provide the required capital at the lowest cost, well, get on with it.
Generally, the worst use for the additional funds provided by a home equity loan would be to purchase consumer goods that lose a big percentage of their value as soon as they arrive at your home. Forget about buying that new expensive flat screen TV or new big boat if you have to take money from your home to make the purchase.
Another real danger is to use a loan to live well beyond your means. You can burn up a lot of money by taking great vacations to exotic locations around the world and by going out to eat expensive dinners at classy restaurants a few times a week. But once you have consumed your equity you are going to have to go through a painful readjustment process.
It is important to remember that a home equity loan is like any other loan. The lender fully expects you to pay it back with interest. Frequently a lot of interest. As you reach retirement age the equity you took out of your home may well be money that you wish you had left intact.
For most folks, saving money is not nearly as much fun as spending. Using your home equity to go on a spending spree can be tempting. But paying off your home mortgage over time while letting equity accumulate rather than frequently tapping into your home equity like an ATM machine will let you live a lot more comfortably in your retirement years.
This is especially true if like most Americans you haven’t been able to stash away very much cash over your working years.
There are always exceptions to any general rule (Rule: retaining equity in your home is best) and some uses of a home equity loan may well be sound. As long as you don’t get too carried away with your new found “wealth” represented by your increasing home equity and manage to live within your income means you can afford to be flexible in the use of home equity loan funds when an important acceptable use is at hand.
Generally “an acceptable important use” would be to use your home equity to further increase your income with a high degree of certainly that you will achieve a favorable investment outcome, or to take care of a true emergency where life, or the quality of life, is more important than money.
I would recommend forgetting about tapping into your home equity to take that cruise around the world. The cruise would soon be over but your loan will remain. Counting on an ever increasing home value to replace the equity you consumed by taking the cruise may no longer be wise.
Every boom eventually comes to an end and you should ask yourself how you would cope with a flat or declining real estate market.
Yes, contrary to popular believe, it is possible for real estate prices to decline over long periods of time and they occasionally do. A good cushion of equity in your home provides a lot of comfort in a declining market so treat the acceptance, closing, and drawdown of a home equity loan as an important financial decision.
Home Equity Loans: a Flexible Option to Cater All Your Needs
November 5th, 2009
It really feels great to have a house of your own. It not only gets added up in your assets but can also become an excellent source of credit when you need it the most. In other words, your home can turn out to be a great source of money when you fall in urgent need of funds. This has been made possible with the help of a home equity loan.
Home equity is the ownership value tied up in a home or a property which estimates the current market value of the house. This amount does not include any remaining mortgage payments. Thus, home equity is calculated by deducting the unpaid balance of the mortgage and any outstanding debt over the home from the home’s actual market value.
The home loans are categorized in two segments- the standard Home Equity Loans and the home equity line of credit. The standard home equity loan offers a debtor with a particular amount of money that has a fixed interest rate and payments. These loans have to be paid in a fixed time period. These loans offer a larger loan amount as its borrowers are allowed to re-borrow the loan amount that they had already paid in the past.
A home equity loan is always secured in nature as it requires you to pledge your homes’ equity as collateral. These loans offer low interest rate, help you become debt free, allow you to borrow up to 100% of your home’s value and the loan payments usually come with certain tax advantages.
The value of equity can be used for various purposes. These include availing loan and to invest for getting a high interest rate. Borrowers may use this loan amount for making home improvements, for college tuition or for things like investing in business ventures like purchasing additional property. Thus, a home equity loan is an alluring option for all those homeowners who require quick cash for any of their urgent needs.
By: George Kane
