The equity of a house can at times come to the rescue of the owner. Without losing ownership, he can advantage from the equity of his home by taking home equity loan to meet urgent financial requirements.
Home Equity Loans are based on the equity of the home. In these loans the equity of the home is accepted as collateral. So a homeowner is only eligible for home equity loans. The equity of a home is the market value of the home minus the outstanding mortgages against it. So if the market value of a home is £200000 and the outstanding mortgages amount to £70000, then the homeowner has £130000 as the equity to get a loan.
Home owners can get these loans in two forms, as home equity loans and as home equity line of credit popularly known as HELOC. In home equity loans, the entire loan amount is given to the borrower as a lump sum. Interest starts accruing on the loan amount from the day it is disbursed.
However, in HELOC, borrowers can withdraw money according to his needs up to a maximum limit he is entitled to. The scheme acts like a credit card. Here interest is charged only on the amount used and not the entire amount.
In home equity loans, the borrower is generally entitled to get only 80% of the equity of the home. There are, however, borrowers who give loan amounts up to 125% of the equity. With home equity loans one can borrow money in the range of £5000 to £75,000. Repayment terms ranges between 5 to 25 years.
Home equity loans offer cash relatively fast and at low interest rates which control the cost of the loan. Another big advantage of these loans is that the interest is tax deductible.
Before taking a home equity loan the borrower should find out the equity of his home. For getting deals suitable to him, he should do proper research both offline and online. He should not rush in to grab whatever is nearer to his hand.
By: Dina Wilson
Posts Tagged ‘Low Interest Rates’
Home Equity Loans: Financial Aid Against Home Equity
December 26th, 2009Home Equity Loan : Loansmagician
December 18th, 2009Real estate prices across the country have skyrocketed in the last five or six years. Low interest rates, combined with a lack of trust in the stock market has led to a tremendous inflow of capital into real estate. To put that in perspective, take into account the median household income, which is a little over 44,000,dollar and compare that with the national median home price of 216,000 dollar, a very high multiple. Of course, in many metropolitan areas ( http://www.ixs.net ) where a large fraction of the nation’s population lives, the rise has been even more spectacular. San Francisco has seen the median home price rise from 395,000 dollar in 2000 to 713,000 dollar in early 2005
For those who did not get in at the right time, the situation is lamentable, many others, on the other hand, find themselves sitting on potential gold mines – in many cases they have witnessed the doubling, trebling or even quadrupling of their investments in a matter of a few years. Walking and sleeping on land that has appreciated under your eyes is a satisfying experience, and some people are quite happy to count their chickens without wanting to cash-in on their gains. Others, for whatever reasons want to enjoy their newfound wealth. Home equity loans offer an opportunity to do just that.
The fact that property prices have risen means that more Americans than ever before are eligible for home equity loans. Let me illustrate that by an example – say you bought a home for 300,000 dollar five years ago, putting down 20% (60,000 dollar) at that time. If you have a typical thirty-year fixed mortgage then you have not made a significant dent in the principal (in this case the loan principal is 240,000 dollar) in the first five years. Now suppose, quite realistically in many cases, that the house value has appreciated from 300,000 dollar five years ago to 500,000 dollar today. In this case your equity in the house would have jumped from 60,000 dollar (your down payment) to 260,000 dollar (down payment plus unrealized capital gains). You would be eligible to take a loan against that increased equity. Most institutions are willing to extend home equity credit for upwards of 50% of total equity in the home.
Now that we have established that a rising real estate market has produced many more potential candidates for home equity lines of credit, let us show why this is a financially savvy way of consolidating loans or of securing financing. Whether the reasons are personal, such as Ferrari you have been drooling over, or for your home business, home equity loans are usually the best first option for obtaining liquidity. First, home equity loans take advantage of tax breaks that the federal and state governments give all homeowners – all interest payments made to service the loan are tax exempt.
This advantage alone warrants serious consideration – a family in the 30% federal income tax bracket will stand to save a substantial amount on a typical home equity loan. The implications of the tax advantage are such that many people with no need for additional credit take out home equity loans and invest elsewhere just so they can take advantage of Uncle Sam’s generous handout. Second, home mortgages are handled a little differently from other consumer loans because of two reasons. First, the loan is “secured” by a tangible asset (i.e. the house, comprising of the value of the land and the material with which the house is constructed) and second, there is a huge industry that deals exclusively with home mortgages and home loans, resulting in a fiercely competitive environment. To the consumer, this results in significantly lower interest rates on home loans.
So, let us recap the win-win situation for a home equity line of credit. Rising real estate prices have made more people eligible for bigger loans, in many cases significantly bigger loans than ever before. Relatively low interest rates, thanks to the Fed and a competitive home mortgage industry has kept the cost of borrowing low. And finally federal and state tax breaks on home loans further reduce the cost of borrowing.
If you are thinking of borrowing money and you are a homeowner, be sure to consider a home equity line of credit before pursuing alternative methods of financing.
For more information about Home Equity Loan visit http://www.loansmagician.com/home-loan.php
By: Jill Murtha
Home Equity Loans Online
December 15th, 2009One of the best things about purchasing a home equity loan online is the wide selection and range of offers you will find. There are a variety of home equity loan terms, programs, and interest rates to choose from when you take out your home equity line of credit online. If you look around, you will find many good home equity loan deals. Some companies offer low or no closing costs for your home equity loan. Unlike your first mortgage, you don’t need to get slapped with a bunch of surprise fees. This process will be so much simpler than the first time around, so if you run into a home equity loan with no closing costs and a low interest rate, go for it! You can lower your monthly payments on your mortgage and your home equity loan by consolidating the two. With so many low interest rates available, now is a great time to do it. You may end up with an interest rate for both loans that is the same or less than the one you’re paying for your mortgage right now. If you decide to take out a home equity loan, go all the way. Take as much as you qualify for. The more you take out, the lower your interest rate will be. If that amount is more than you need for your current focus, then use the extra money to make home improvements or pay off your debt completely. A word of caution when you choose to shop online for your home equity loan: be careful of whom you give your personal information to in the process. Look for third party accreditation and check out their business record. Internet identity theft is very common, so protect yourself.
