Home Equity Loans – Encash the Equity in Your Home

Equity in your home can do wonders for you. Yes, it is true. If you are a homeowner with a good credit history, you can make use of the equity in your home to get the money you need.

Home equity loans provide borrowers with a solution to release the equity in their home, which is usually available upon sale of the house. You need not sell your home to get the money you need. Home equity loan will be secured on the borrowerâ€™s home, without affecting his or her existing mortgage. This is also known as second mortgage charge.

A borrower can use a home equity loan for several purposes. It could be for financing college education or going out for a luxurious holiday. Home equity loans can be used for consolidating debts. It solely depends on the borrower, how he plans to use the loan.

Home equity loan [http://www.ukfinanceworld.co.uk/uk_home_equity.html] is also referred to as â€œEquity Release Schemeâ€ as it helps in releasing equity from the home. Equity release can be categorized into three areas: -

Loans and mortgage â€“ With a home equity loan, one can borrow a percentage of his or her homeâ€™s value. A borrower can use this loan for any purpose he or she desires. Using a home equity loan for making improvements at home can be a good idea. These improvements may increase the value of the home. Further equity will be helpful in refinancing loan.

Home Income Plans â€“ This is used to generate monthly income. The loan will usually be invested in an annuity-based investment that pays your income plus the interest on the loan.

Home Reversion Schemes â€“ If you wish to remain in your home and need to supplement your regular income, you can consider a home reversion scheme.

Home equity loans can be useful for the elderly people too. They can release the equity in their home and can use the money to add-on to their pension. Home equity loans allow the elderly people to borrow the money at relatively low rate of interest and manageable monthly payments.

With a home equity loan, a borrower gets the option to take the loan in lump sum or through credit line. Under the lump sum scheme, the entire loan amount will be given to the borrower at once and interest becomes payable on it immediately. A credit line or a line of credit option is popularly known as HELOC (Home Equity Line Of Credit). HELOC provides borrowers with the choice to borrow funds in the manner that they choose, up to a maximum credit limit for which the borrower has qualified. The most preferable feature of HELOC is that the interest is charged only on the amount of loan used and not on the entire loan amount.

The biggest advantage of a home equity loan is, that the interest on it is tax deductible. Another important advantage of taking a home equity loan is that it offers a relatively fast and easy way to get the cash you need at a very low interest. Low interest rate helps in controlling the cost of loan. Home equity loan is a way of freeing up the cash from your home, without any of the hassles or costs associated with moving.

You need to know few things before you apply for a home equity loan. Find out whether you have enough equity in your home to apply for the loan. In addition to this, more you know about applying for and negotiating for the home equity loan, the better deal you will be able to get.

To avail the benefits of home equity loan, you should firstly talk to your current mortgage company about the options available to you as a borrower. Nevertheless, do not stop there; you need to make some efforts to get the best deal. Search for various lenders such as banks and online lenders who offer home equity loan and collect loan quotes from them. Compare the loan quotes and choose the one that matches your expectations to the best.

Home Equity Line of Credit – Helpful Home Equity Loan Tips

We’ve all been there: life deals you a bad hand, and unexpectedly you need money you don’t have. At times like this, it’s important to remember the best asset you have: your home. You might consider refinancing as a way to help you through the tough times.

One option you have is a home equity loan. Home equity lines provide homeowners with quick access to extra cash in times of need.

What is a Home Equity Loan?

A home equity line of credit allows you to borrow against the value of your house. The cap on the loan is usually determined by estimating a percentage of the value of your house – 75% or 85% of the house’s value, if your credit is good – and subtracting what you still owe on the first mortgage. Home equity lines usually allow you to draw from the account using special checks or credit cards. The terms of the specific loan will determine the length of the loan, the length of the “draw period” (the period of time during which you can withdraw money on the loan), the interest rates, the minimum and maximum amount that you can withdraw at any one time, and the method and payments with which the loan will be repaid.

For instance, some home equity loans may credit payments only against the interest due on the loan, leaving the borrowed amount to be paid in full at the end of the loan period. Other loans may simply have a larger-than-usual payment, called a balloon payment, as the last payment. However, it may be helpful to note that the interest you pay is usually tax-deductible, meaning that you will get it back on your tax returns; if managed correctly, this “bonus” money can balance the impact of a large final payment on the loan.

In contrast, taking out a second mortgage on your house will give you the borrowed money all at once. Mortgages usually have fixed interest rates, which might be set slightly higher than the introductory rates on a home equity loan. On the bright side, though, the rates and payments on a second mortgage won’t change, whereas the variable interest rates of a home equity loan may mean a payment that increases steadily over the years.

Shopping for a Home Equity Loan

Shopping for a home equity line of credit is like shopping for almost anything else: lots of different lenders provide lots of different choices. In order to make the choice that will best serve your needs, you should be prepared to obtain and compare quotes from many different lenders.

Most home equity loans have variable interest rates, which are determined by an index. When comparing home equity loans, you should know the index that each loan uses to determine your interest rate. Variable interest rates also have a couple of caps that are important for you to know, as they limit how far and how fast the interest rate can rise. The periodic cap limits how much the rate can change at one point in time, and the lifetime cap limits how much the rate can change over the life of the loan. It’s also important to know whether the rate you’ve been quoted is a discounted introductory rate; if so, make sure you know how long the introductory period is, and what the rate will go up to when it’s over.

If you are comparing a home equity line of credit to a second mortgage, understand the differences between them. Primarily, when comparing the costs of both, realize that the APR quoted to you on the second mortgage will be the only cost of the loan, whereas home equity loans also have account fees and other charges that are not built into the APR.

Costs to Consider

“For a true comparison of credit costs, compare other charges, such as points and closing costs, which will add to the cost of your home equity loan,” the Federal Trade Commission (FTC) advises in their document, “Home Equity Credit Lines.” The Truth in Lending Act requires lenders to be open about the terms and costs of a loan, but you may need to ask for this information up front if you are comparison-shopping before committing to any one lender.

o Application fee – In order to qualify for credit, you will have to submit an application to the lender. This application will allow the lender to check your credit score and your debt-to-income ratio, two important factors in determining your credit worthiness. Be aware that your application fee probably won’t be returned to you if you fail to qualify for the loan.

o Appraisal fee – The lender will want to first appraise your house in order to determine the value of the property. From that appraised value, they will determine your line of credit. Appraisal fees can be considerable, and should be compared between lenders as one of the costs of the loan.

o Up-front charges – The lender may assess charges for setting up your account. These charges may vary considerably between lenders, so it’s wise to compare these charges when deciding between multiple home equity loans.

o Closing costs – Just like when you bought your house, you may have to pay closing costs when you get a home equity loan. “These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line,” the FTC states. Different lenders feature different closing costs, so any comparison of home equity loans should take these costs into consideration.

o Interest rates – Interest rates determine how much interest you will have to pay over the life of the loan. In order to compare multiple loans, you’ll need to be able to see the “full picture” of what the loan will cost you, which includes the interest rates as well as the other fees and charges the loan will accrue.

o Account fees – Home equity lines often have continuing fees associated with the account, such as transaction fees, maintenance fees, or an annual membership fee. These fees will also vary between lenders, and should be compared as one of the costs of the loan.

Keep in mind that a home equity loan with low interest rates may make up the difference in other costs. For that reason, when shopping for the best deal it’s a good idea to assess all costs associated with each loan.

Using Your Home Equity Line of Credit Wisely

“Because the home is likely to be a consumer’s largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.” This statement, made by the Federal Reserve Board in their document, “When Your Home is on the Line: What You Should Know About Home Equity Lines of Credit,” reminds us that home equity loans should not be taken lightly. After all, if something goes wrong and you cannot repay the loan according to your terms, you risk losing your most important possession of all: your home.

Home Equity Loans – Basics

Home equity loans have become increasingly popular in the past few years. With property values rising, more people have realized the benefits. They allow you to borrow a certain amount of money, using your home’s equity as collateral. Collateral is property offered to a lender as security for the loan. It gives the lender a guarantee that you will repay the debt, because if you did not, the lender could sell your property to get the money they lent you back. Equity is the difference between how much the home is currently worth and how much is owed on your mortgage. Home equity loans may seem complicated but they are actually quite simple. You just need to understand a few terms and concepts.

What is a Home Equity Loan?

A home equity loan is a second loan on your property that gives you money based on the amount of equity in your property. You can spend it on anything you want. Most people use it for home improvements, debt consolidation, college educations, vacations or car purchases. The interest that you pay on your home equity loan is typically tax deductible-and that is a huge benefit to this loan. Consult your tax advisor regarding the deductibility of home equity loan interest.

What’s the difference between Home Equity Loans and Lines of Credit?

There are two ways a lender can loan you money based on your home’s equity. First is a home equity loan which is based on a set loan amount, and second is a home equity line of credit, also known as a HELOC, which is a revolving line of credit. Both are referred to as second mortgages, because they are secured by your property, behind your first mortgage. With home equity loans, you apply for a set loan amount and pay it down based on a fixed interest rate. The maximum amount of money that can be borrowed is determined by several variables such as your credit history (FICO score), income, first mortgage and the recent appraised value of the collateral property.

How much can they loan to me?

The relationship between your loan amount and your home’s appraised value is called the “loan-to-value” ratio, or “LTV”. As LTVs increase, the interest rate of the loan in question usually increases as well. (“Home Equity FAQs”). The maximum amount the lender loans is partially determined by this ratio. The maximum LTV varies per lender. Note that if the LTV is too high, it could affect your approval, interest rate or conditions due to the increased risk for the lender.

Can I get an equity loan on my rental property?

Home equity loans can be taken out on primary residences, second homes, investment properties and vacation homes. However, each property has individual conditions for approval. It is also more difficult to qualify. This is due to the increased likelihood of defaulting. Underwriters prefer applicants with better credit and more assets than they do with applicants purchasing their primary residence.

What if my income is too difficult to determine?

If you have difficulty providing all the income documents necessary for the loan, you can apply under special loan programs such as stated income, “no doc” or “low-doc.” Applicants who are self-employed or commission-based use them often. People who do not want to share their financial history and complicated tax returns with a lender fall into this category as well.

Can you refinance your mortgage with a home equity loan?

If the interest rate or mortgage payment on any property is too high, a home equity loan is also a good way to refinance your existing mortgage loan, take some additional cash and make one easy monthly payment (“Home Equity FAQs”). Refinancing is the process of adding a new first mortgage to replace an existing first mortgage and any other liens you may have. There are two ways to refinance: no cash-out and cash back. No Cash-Out refinancing reduces your monthly mortgage payment and the remaining term of your loan. It can help you save thousands of dollars in interest. Cash back refinancing allows you to borrow money in excess of what you currently owed on your mortgage. You still reduce your interest rate and term, but you also get a hold of the money you earned when your property’s value increased. Cash back refinancing is a smart decision if you have future expenses that will need financing. If you need a new car, you could take an additional $30,000 and add that amount to your loan. The interest rates will likely be lower than your credit cards or car loan, and again, the interest you pay can be tax-deductible.

Refinancing with a home equity loan is similar to refinancing with a traditional mortgage. The main difference is that equity loans are typically repaid in a shorter time than first mortgages. Traditional mortgages are usually repaid over 30 years. Equity loans often have a 15-year repayment period, although it might be as short as five or as long as 30 years (“Home Equity Credit Lines”).

Now that you are familiar with some basic home equity loan terms and concepts, the process should seem straightforward. When you need money, obtaining a home equity loan not only simplifies your life, it also saves you money. It gives you piece of mind through the fixed low interest rate and low monthly payments. The process only takes several days and the funds are transferred into your bank account upon the loan’s closing. It is as easy as pie.