Suppose you have obtained a first mortgage worth ₤150,000 on your property. You have paid ₤70,000 in last 5 years. Your home value has also increased to ₤300,000 in these 5 years. So your home equity is ₤1, 50,000 (₤300,000 – ₤70,000). Now if you take a home loan worth ₤2, 30,000 keeping the home equity as security for the debt, then such loans are called home equity loans.
Equity is the difference between how much the home is worth and how much you owe on the mortgage if you have more than one on the property. Home equity loans are second mortgages that let you turn equity into cash, allowing you to spend it on home renovation and improvements, business extension, availing children higher education, debt consolidation, or other expenses.
There are many benefits of home equity loans. Followings are some:
•Low interest rate home equity loan
•Borrow up to 125% of your home value (amount ranges ₤3, 000-₤75, 000)
•Flexible repayment term (term of 5to 25 years)
•Make any use of the loan amount
•Free online advice for home equity loans
•Lower interest rates
Home equity loans are quite useful, and have several advantages over other types of loans, such as credit card loans or more traditional secured loans. The biggest advantage is that the interest on home equity loans is tax deductible. The interest rates on home equity loans are already pretty competitive, but the addition of the tax deduction makes them pretty hard to beat.
Home equity loan is risk less loans. The lenders use the borrower’s home as collateral security. Home equity loans allow users to access funds depending upon the borrower’s requirements in varying amounts up to their credit limit.
For this cause, there are innumerable lenders present online. With the respective terms and conditions, these lenders are going in for alluring borrowers one way other. Availability of home equity loans online has made availing rather time-saving and instant at processing.
By: Dina Wilson
Posts Tagged ‘second mortgages’
Home Equity Loans Give Financial Acuity
December 16th, 2009What Home Equity Loans Guide
December 12th, 2009Your home can help you raise cash. How? Home equity loans have become a popular way of raising cash. The amount that you owe for your house subtracted from its current appraised worth is the equity on your house. Or simply put, it is the difference between the appraised value of the house and the amount you owe on the mortgage. As you pay off your mortgage or as the worth of your home increases, you build your home equity. Your home’s equity can be used as a collateral to loan money. It can serve as a guarantee so that if you are unable to pay your debt, the lender can sell your collateral as a payment for your debt. The home equity loan will serve as a second mortgage that will allow you to turn it into money which you can use to improve your home, for college education or whatever expenses that you are in need of. There are two kinds, the home equity loan or the lines of credit. These types of debts are repaid in shorter time spans than first mortgages. If normally, a first mortgage may be repaid in 30 years, a second mortgage may be repaid in as short as 5 years to as long as another 30 years, averaging at 15 years. Lines of credit is more flexible than the home equity loan because you can stay in debt with home equity loans. Interests are only being paid while the principal amount remains the same. The interest rate, therefore, varies as the principal varies. These two types of debts have become common since the 1980s when values of properties increased tremendously and homeowners have taken advantage of this to pay off personal debts. Low interest rates and that fact that it could be deducted from your taxes are some of the reasons why they have become very attractive. Though second mortgages have interest rates higher than first mortgages, it has lower rates than credit cards or other personal loans. Homeowners usually opt for home equity loans when they are in need of a large amount of cash like debt consolidation or paying off hospital bills or even home improvement projects. Also, repayment terms are quite simple and consistent throughout the entire payment period, regardless of inflation rates. Having discussed the plus points and pitfalls of home equity loaning and lines of credit, it is now possible for you to decide whether these types of cash conversion will work for you. You can now opt for the type of loan that would fit your very needs.
Home Equity Loan – A Popular Fund Raising Option
December 5th, 2009Home equity loans have become one of the most popular fund raising options for individuals.
Home equity loans are the loans taken using your home’s equity as the collateral. Thus they are a type of secured loan.
These loans are based on two facts – first, that you have repaid a certain portion of the home mortgage and thus should be able to reutilize that equity; and second that the value of your home has increased since you first purchased it.
The common reasons for taking an equity loan are home improvements, educational expenses, medical bills, debt consolidation etc. There are usually no restrictions on how the borrowed money is used.
The interest paid on such loans is usually tax deductible. Also the interest rates on them are lower than credit card other type of consumer loans. (They are higher than the first mortgage.)
Let’s understand what “home equity” is.
Home equity is defined as the difference between the market value of your home and how much you owe on the mortgage (or mortgages in case you have more than one.)
The market value of your home will be determined by bank’s appraiser or a licensed appraiser.
Suppose market value of your home is $ 100,000 and you have made a down payment of $ 10,000.
Then your equity
= market value – amount owed
= $ 100,000 – $ 90,000
= $ 10,000
After three years if you have paid back $15,000 more of the debt, you will still have $75,000 of the debt left. However after three years the market value of your home would have increased to $ 150,000.
Thus your equity after three years would be
Market value – amount owed
=$ 150,000 – $ 75,000
=$ 75,000
Besides home equity loans (fixed rate home equity loans), there is another type of home equity debt – home equity line of credit or HELOC.
Both of them are known as “Second Mortgages” as they are secured by your home just like the first mortgage.
“Second Mortgages” are repaid sooner than the first mortgages, which are usually repaid in thirty years. Home equity loans usually have a time frame of five to fifteen years.
Home equity loans are a one time lump sum loans, that are repaid over a time period decided beforehand.
On the other hand, home equity line of credit or HELOC allows you to borrow up to a certain limit for the period of the loan. The time limit of the loan is set by the lender. You can withdraw money any time during the time period and repay it any time. It works the same way like a secured credit card.
A HELOC has a variable interest rate that varies through out the period of the loan. The HELOC interest rate depends on the prime lending rate (prime lending rates are fixed by the federal reserve in the US.) The payments can vary depending on what is the amount that has been borrowed, the interest rates and whether the loan is in the draw period or the repayment period.
The credit rating of the borrower is also a factor in deciding the home equity loan interest rates.
The draw period of the line of credit is the period during which you can borrow any amount up to the limit specified by the lender. Also only the interest has to be paid during this period; however you may choose to repay the principal amount if you wish.
During the repayment period, no new debt can be taken and the existing debt must be paid back.
Usually draw periods are for ten years and repayment periods around fifteen years, but this varies depending on the lender’s policies.
Withdrawals for HELOC can be done by checks, credit cards or EFT. Lenders may have certain terms which make require you to take an initial advance when the HELOC is setup, borrow a minimum amount each time you use it and keep a minimum outstanding balance.
If you decide to sell off your home, you have to pay back full amount of the home equity loan.
By: Sachin A
