Personal Finance and Investing

Home 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.

Sachin A. is a freelance writer and specializes in articles that require extensive
research. Check out his work at http://www.articlemanual.com
. More home equity articles at home equity loan

A home equity can be a great way to to get some money fast. Home equity loans are also sometimes called second mortgage. They allow a homeowner to borrow money from the equity they have in their home. Home equity loans can be for as much as $100,000 allowing homeowner to borrow to do renovations, pay off debt, etc. The interest on a home equity loans is tax deductible which has made this type of loan quite popular in the 1990s. Let’s look at how they work. Home equity loans come in two types. There are fixed rate home equity loans and line of credit home equity loans. In both cases, the terms vary from five to fifteen years. However, in both cases, the loans must be repaid in full in the event that the house is sold. The fixed rate home equity loans option gives the home owner a lump sum payment from the equity. The home owner will then repay the loans over a pre-determined period of time at a fixed interest rate. In most cases, the repayment is made monthly and the interest rate and the monthly payments remain the same over the life of the loan. In the case of the line of credit home equity loan, the principle is much the same as with a credit card. In fact, this type of loan often comes with a credit card. The home owner will be notified of the maximum limit of the line of credit and he or she can spend the money either by using the credit card or the cheques that the lender provided. Just like credit cards, line of credit home equity loans work on a variable rate of interest, which is determined monthly. Repayment of the loan must be made monthly, based on the amount borrowed that month. Once the life of the line of credit is over, the outstanding balance must be repaid in full. Home equity loans are a great source of money for home owner that need access to cash quickly. The money can used for anything at all but most borrowers will use the money to do home improvements, send kids to college, pay off another loan, etc. Home equity loans can be very appealing as their interest rate are almost always lower than other types of loans and certainly lower than credit cards. Someone with a credit card loan would benefit from taking a home equity loan on their home in order to repay the credit card debt. Not only will the home owner reduce his interest rate, the loans will be consolidated into one month bill and the interest rate on the home equity loan is partially tax deductible. Home equity loans are a great financial tool. Particularly for home owners looking to do renovations or with unforeseen expenses. They provide fairly easy access to money at a relatively low interest rate. However, remember that the loan must be repaid and that if you sell your home, the amount that you borrowed will not be profit in your pocket.

Stefan Hyross writes on topics that include Forest Hill real estate in Toronto and other market information. If you are looking for a Yorkville realtor, real estate information and related real estate articles, please feel free to visit the site.

Improve Your Finances with a Debt Consolidation Mortgage Refinancing Loan

If your high-interest rate credit card debts are costing you a fortune, you could save money, reduce your taxes, and pay off your debts faster with a debt consolidation mortgage-refinancing loan. You have two options for a debt consolidation loan: mortgage refinance or home equity.

Mortgage Refinance Is Best for Big Debts

If you have credit card debt totaling more than $50,000 dollars or other high interest debts, then a mortgage refinance loan is the way to go. You’ll need to qualify for a new loan, but most people are offered a low rate if they’ve built equity in their homes and have a credit score over 700.

With a mortgage refinance loan, you can set a term anywhere from 10-30 years and the interest is tax deductible. It’s recommended for larger loans because the longer time frame stretches out the payments to an affordable level. Depending on the amount of equity you have, you could also borrow extra money to make home improvements like installing a new roof or remodeling an antiquated kitchen or bathroom.

Home Equity Loans Are Best for Small Debts

If you have smaller debts in the $10-20,000 range, then a home equity loan is a better choice. Your rate will be slightly higher than a fixed rate mortgage loan, but you’ll have little or no closing costs and receive the money much faster. You can also set payment terms for just a few years rather than 25-30.

There are several advantages to getting a home equity loan instead of other debt consolidation loans:

* Your interest rate will be lower than you can get with a credit card

* You won’t pay any balance transfer fees

* Your interest is tax deductible.

Borrow Safely to Protect Your Home

Whether you get a home equity or mortgage refinance loan, make sure you only borrow an amount you can afford to repay. If you can’t make your payments, you could lose your home. When deciding how much to borrow, keep in mind that you should never borrow more than 80% of the current value of your home so you have a cash cushion in case home prices decline and you need to sell.

You should only borrow funds against your home if the interest rate on the debt is higher than the interest rate on your home equity loan and isn’t tax deductible. It wouldn’t be worthwhile to get a 7% home equity loan to pay off a student loan fixed at 4%.

If you borrow smartly, a debt consolidation mortgage refinance loan or home equity loan can save you hundreds of dollars in interest and reduce your taxes. If you own a home, consider this solution for medium to large debts.

For more articles on Debt Consolidation Mortgage Refinancing Loans, visit: http://www.bills.com/debt-consolidation-mortgage-refinancing-loan/

Justin has 5 years of experience as a financial adviser; his key areas are loan consolidation, debt relief, mortgages etc. For more free articles and advice visit http://www.Bills.com.

There are many types of loans suitable for home improvements, however, the one known to be the most popular one is a Home Equity Loan. Any one who has applied for a mortgage and has available equity that can be cashed out may apply for a home equity loan through an equity lender.

A home equity loan will is also a way to get cash for other expenses like: paying for medical bills or for college tuition. The rates offered by most lenders are relatively low, because of the home acting as collateral.

You must have a fixed monthly income in order to be able to liquidate your equity. Very few lenders will agree lending money to a person that doesn’t have a job because they can’t know if you one will be able to pay the loan back on time. In order to get the best home equity loan rates, make sure you have a high credit score and if possible – shorten the loan’s repayment term.

Home Equity Loans for People with Bad Credit Scores

Although this type of loan is a secured loan meaning that the lender isn’t in a high risk when lending a person the money, bad credit ratings have a negative impact on the loan’s interest rate. A home equity loan for bad credit ratings can be obtained through sub-prime lenders and by shortening the payment term – one might find lower rates.

Compare Home Mortgage Lenders for the Lowest Rates

Home Mortgage Lenders often offer additional services such as mortgage refinancing, debt consolidation loans and home equity loans. By comparing several equity lenders online you will eventually find the best rates and home equity loans options. Bad credit home equity loans will be helpful for any consumer with credit problems.

Visit us for information about home equity loan rates and compare home equity loan applications online.