With any remodeling and construction projects you do on your home there are many payment options available for most home improvement remodeling projects. For example, you can get your own loan such as a home equity loan or credit equity line or ask the contractor to arrange financing for larger projects. For smaller projects, you may want to pay by check or credit card.
For the larger projects a home equity loan, or a credit equity line also known as an equity home line of credit, can be a good solution because the interest rates are often better than other types of loans or credit and, depending on the amount of equity you have in your home, you might also be able to use it as a debt consolidation loan at the same time to pay off high interests credit cards and other high interest debt so you can be relatively debt free with just the equity home line of credit at a lower interest rate and improve your home and bring up its value at the same time.
What is the Difference between a Home Equity Loan and a Home Equity Line of Credit?
A home equity loan is a loan that is secured by your home. It is also sometimes referred to as a closed-end home equity loan or a second mortgage and is a fixed amount of money that must be repaid over a fixed term just like your original mortgage. You get the entire loan amount upfront all at once. You have predictable, consistent monthly payments.
A Home Equity Line of Credit in many ways is similar to a credit card. It is a a form of revolving credit in which your home serves as collateral. You can borrow as much as you need, whenever you need it, by writing a check as long as your total borrowing does not exceed your credit limit.
Because it is a line of credit, you make payments only on the amount you have actually borrowed, not the full amount available. What makes a Home Equity Line of Credit so popular is that interest paid is usually tax deductible under federal and most state income tax laws.
Whether you use a home equity loan or a home equity line of credit for a home improvement project or as a debt consolidation loan or both it’s a great way to make your debt tax deductable and improve the value of your home at the same time.
Posts Tagged ‘Original Mortgage’
Home Equity Loans For Dummy’s
December 13th, 2009Have you noticed that every time you watch your favorite TV show, a home equity loan commercial seems to pop up? Or, you rush out to your mailbox and discover yet another offer wanting you to take out a home equity loan?
Without question, home equity loans have exploded in popularity over the past few years. It has become the way of getting the money you need to solve your financial needs. But, many people don’t fully understand just what they are. Here are some of the basics on what these types of loans are all about.
In simple terms, a home equity loan is money that you can borrow by using your home as collateral. The amount you can borrow is based on the current value of your home, less the amount you still have due on your original mortgage.
For example, let’s say you have a home that is valued at $500,000. Your current loan balance is sitting at $400,000. You could possibly obtain a loan for $100,000.
The total loan amount will be determined by variables such as your current credit history, etc. Keep in mind though, even if you currently have some credit issues you’re dealing with, a bad credit home equity loan is not that difficult to get. It just takes a little more effort in finding.
You can use the funds for whatever you wish. This can be both a positive and negative though. Here’s why.
Home equity loans are great for uses such as home improvement projects, college expenses, medical bills, and of course, bill consolidation. Getting out from under debt is a major reason that people get a home equity loan.
But, people will also borrow money on the equity in their homes for items like a new car, appliances, exotic vacations, or other luxury items. Well, it’s your money and you can certainly use it as you see fit, but be careful.
Make sure that you can afford the monthly payment for years to come. Since a home equity loan is secured by your home, if you go into default on the loan, the lender can take possession and sell your home to satisfy the debt.
Check out several offers before making a final decision to sign any loan agreement. Take your time and you’ll be fine. Getting the right home equity loan for the right reasons could very well be the solution you’re looking for.
Six Key Aspects of a Home Equity Loan
September 7th, 2009Ever feel lost when people talk about subjects like a home equity loan? It certainly does sound something like what you would hear on a business news show. But for every homeowner or someone considering property purchase, home equity is an important concept to grasp. It really isn’t very complicated either. Therefore, piror to understanding a home equity loan, let’s first talk about home equity.
What is home equity?
Equity can simply be understood as the monetary value of something you own after you deduct the amount of outstanding loan you have on it. For example, if your house is worth $200,000 and you owe your finance company $50,000, then the equity of your home would be $150,000. So basically, the more loans you clear on your home the greater equity it will have. A surge in the real estate market and prices of property also helps in adding on to your home equity.
What is a home equity loan?
Now that you have an idea of what a home equity is, let’s get into a home equity loan. Simply put, it is the process of taking a second mortgage on your home. For example, if your have recently bought a house for $200,000 on mortgage, a home equity loan will allow you to secure a second mortgage of 25% of your first mortgage, which would be $25,000 in this case. Depending on the lender, one may even be given as much as 80% of the original mortgage for their second mortgage.
Six key aspects to consider
1. First of all, issue a home equity loan only if you must. It is always better to not have any additional loans than the one you already posses.
2. If you do feel you need to secure a home equity loan, then you will generally need to have a great credit score since this loan is mostly given to those who are considered “qualified borrowers,” i.e. those who have a good track record of paying back on time what they have borrowed.
3. Keep in mind that apart from the credit score, your home itself will also be on the line as collateral with the lender. So defaulting on your loan could result in losing your home.
4. One good advantage of a home equity loan is the fact that the interest rate is generally lower than those of credit cards. So if you do need to borrow money through a credit card for something large, then this would be a less expensive option. But make sure you do a proper comparison of the cost of borrowing money with other options that you might have.
5. The interest you pay on your home equity loan is also tax deductible, which can be a huge benefit when you are cash strapped. But there are limitations to this, so look into it carefully.
6. Shop around. Don’t jump into the first option you see on being issued a home equity loan. Find out how you can get the best interest rate (fixed or adjustable) and read the fine print on your withdrawal limit.
By: Alan Lim
