Home Equity Loan,Energy Efficien Home And Healthy Living

Before you can price your home or determine how much collateral or equity it represents in order to get a home loan, it's necessary to figure out its market value. With the help of a trained and experienced real estate professional, you can ascertain the value of your home within a matter of days.

Two methods are generally used, and both involve written estimates. Depending upon whether you use the appraisal method or the comparative market approach, you'll engage the services of a licensed appraiser or real estate agent.

Appraisals and Appraisers
Appraisers are required to complete stringent coursework and pass a difficult exam before they're awarded a license. In most jurisdictions, they must then enter into an apprenticeship or internship that may last up to two years, before they're considered fully independent, credentialed appraisers. At that point, they're qualified to give estimates for first or second mortgages.

When you hire one to do an appraisal, he will charge a fee-ranging from $200 to $400 in most cases-for a thoroughly detailed and comprehensive written and certified estimate of how much your house is worth. The results are based on dozens of criteria, including lot size, location, square footage, amenities, and quality of construction.

Comparative Market Analysis
Usually referred to by realtors as "comps," the comparative market analysis-or CMA-is a less formal estimate of value, based primarily on recent home sales data in your neighborhood. The CMA can be done free of charge, and is usually an excellent way to ascertain current market value.

Most brokers or listing agents will perform a CMA as a professional courtesy, and can generally produce results within a matter of days, if not hours, thanks to their access to real estate database information.

Most lenders require a recent appraisal as part of the loan application process for a home mortgage or home equity loan, charging the cost of the appraisal to the homeowner. As a result, most consumers forego an official appraisal in lieu of a CMA. This gives a relatively accurate picture of what the property is worth, before spending any money.

A wise man once said, "Leave no stone unturned." While said wise man was probably speaking in general terms, his words of wisdom also apply to saving money on home equity loans. By following these four tips, you can conduct a thorough, disciplined search for a home equity loan and save yourself some serious cash in the process.

1.Who's on first? One thing is for certain: lenders can never finance too many loans. Start your search by contacting the lender who holds your first mortgage. Tell them that you're shopping for a home equity loan and that you'd like to know the best rate that they can offer you, and stay with them if the price is right. You'll be surprised at how far they'll stretch to keep your business with them.

2.Go for broker. Mortgage brokers sometimes get a bad rap; but the ones who are reputable and experienced can really help you. Because they have access to a wide range of lenders, they can quickly do your comparison-shopping for you.

3.The more, the merrier. If you don't choose a broker, make sure that you check out numerous lenders. Screen as many as possible, checking on rates and closing costs. The Internet is particularly helpful in this arena, allowing you to shop many lenders in a short period of time.

4.Show me the home equity loan rate. Your first question when shopping for a home equity loan is, "What's the rate?" But don't stop there. Make sure that you ask about all the closing costs-especially fees-that are involved with a home equity loan or home equity line of credit (HELOC). These can vary greatly from lender to lender.

By doing your research, you'll have indisputable proof that the wise man who leaves no stone unturned will find a honey of a home equity loan. The wise man, of course, will be you.

Traditional bridge loans are appropriately named, because they are designed to help people bridge the financial gap between one home and another. For example, if you buy a new home before selling your old one, you can borrow money with a bridge loan to help cover such things as dual mortgage payments, the down payment on your new home, closing costs, moving expenses, and broker fees.

What's the catch? Interest rates and repayment installments on bridge loans aren't cheap, and can hit you deep in your pocket, just when you're trying to conserve money. One less costly alternative to borrowing a typical bridge loan is to use a home equity loan instead.Tips for using home equity loans as a bridge

There's one major rule you should heed if you're thinking of taking this path: apply for your home equity loan BEFORE you put your house on the market. Most lenders won't let you take out a home equity loan if your property is listed on the MLS (Multiple Listing Service), so this strategy requires some proactive movement on your part. There are banks that will grant you a home equity loan after your house is listed, but they are few and far between.

Therefore, schedule your home equity loan closing before you list your property for sale. As soon as the home equity loan goes through, you can sock away the cash, and put your house on the market. Choose a loan that allows you to make monthly payments of interest only-and not principal-to improve your temporary cash flow situation.

If your house sells within a month or two, you may need to make only one small payment before it closes. At closing you'll pay off the home equity loan and be done with it. Essentially, you will have crossed the bridge before you even got to it.

A home equity loan can be a hero if you're short of cash. It can also seduce you into thinking that you have financial freedom that you don't. Lulled by low payments and quick cash, many home equity loan users find themselves confronted by such troubles as balloon payments, penalties, and sky-high rates.

Four home equity loan traps

1.Not paying it back on time: If you get into trouble by borrowing from a friend or family member, you risk losing a valuable relationship. If you borrow from a bank or credit card company, you might damage your credit rating or need to declare bankruptcy. If you default on your home equity loan, you may lose your home.

2.Prepayment penalties spoil the party: Home equity loans often offer low closing costs and cheap initial interest rates. But if your loan includes prepayment penalties, you might be punished for paying off your debts in a quick and responsible fashion. For instance, if you decide to pay off your loan before the introductory interest rate adjusts higher, your lender might impose a hefty fee.

3.Living it up in the present, forgetting to plan for the future: Some say that the "present" is a "gift" to be unwrapped in every moment of your life. And there's plenty of wisdom in that sentiment. But it's important to remember that if you ever find yourself in a hole, you must stop digging. With some lines of credit, for instance, the borrower is able to defer payment of principal. But eventually, you have to pay the piper. If you borrow money from your own line of credit just to pay the interest you owe on it, you could wind up with a balloon payment the size of your house within a few years. And with no money to pay it off, your lender may take that house.

4.Lenders who are too easy can make your life too hard: If your lender encourages you to borrow 120 percent more than the value of your home, you might think that you just hit the jackpot. But before you sign on the dotted line, think this through carefully. It's often dangerous to borrow more than you can reasonably afford to repay. If you borrow more than your house is worth in order to pay off those nagging credit card bills, it won't make your problems go away, and may even make them worse.

Home equity loan: A true friend

When used responsibly, home equity loans are among the best financial tools on the market. If you avoid the dangers listed above, and repay the loan responsibly and with regularity, it can become your new financial friend, not an unexpected enemy.

Home Equity Loan Tips

Are you bewildered by the staggering number of loans designed to let you tap into your equity? The options seem endless, but they don't have to be "too much of a good thing." The first step toward choosing the right home equity loan option is deciding how you want the money. The following loan choices are described in terms of whether you want money in a lump sum (ideal for short-term needs like home improvement projects or a vacation), or smaller, incremental withdrawals (perfect for college tuition payments).

Cash-Out Refinancing-Lump sum

If you're looking for a lump sum of money, and rates on first mortgages are low, the cash-out refinance is a great call. This involves refinancing your first mortgage and cashing-out a lump sum of equity. In this case, closing costs are higher than with a second mortgage. However, if rates for first mortgages are lower than what you currently hold, you could wind up with a hat trick: A lower monthly payment, long-term interest savings, and the cash you need. With a hat trick like that, your financial life won't be skating on thin ice.

Home Equity Loan-Lump sum

The home equity loan has a fixed rate and term, and, like its sister, the home equity line of credit (HELOC), is considered a "second mortgage." Because first mortgages must be satisfied "first," if a bank is forced to sell a house because of a loan default, lenders charge a slightly higher rate for second mortgages. However, if your first mortgage is at a low rate, the home equity loan might be just the ticket for a lump sum cash withdrawal.

Home Equity Line of Credit (HELOC)-Incremental withdrawals

A HELOC, like the home equity loan, carries a higher interest rate than a first mortgage. It's a popular choice for people who are looking to tap their equity for regular payments that spread out over time. Borrowers who need to make college tuition payments choose HELOCs because they work in a similar manner to credit cards: You have a pre-set credit limit, which you may draw upon when you need it. You're only charged interest on the amount you tap, and the rate is generally tied to the prime lending rate, which is relatively stable.

These are the three most popular ways to transform the equity in your home into cash. All you need to do is decide whether you want a lump sum or incremental withdrawals. Once you make that choice, refer to the general guidelines listed above. It should narrow down the vast universe of lending options to a home equity loan that meets all your needs.

Home Equity Loan Tips

It's widely believed that good things in life come to those who ask. This especially applies to those who ask for concessions and perks when shopping around for a home equity line of credit. Talk to potential lenders, and compare their willingness to negotiate on such things as application fees, appraisals, and low introductory rates. The lender will often waive some, or all, of the application fees and settlement costs.

Perks of home equity lines of credit

Lenders will also help you avoid settlement costs on standard mortgages. But when doing so, they generally roll them back into the loan, which means that you'll pay for them eventually over time. They may also do so in exchange for charging you a higher rate of interest, which can be a better bargain for the lender than for you. With a HELOC, you should expect some real concessions on settlement costs with no strings attached. But don't forget to ask, because many of the perks are unwritten, and lenders save them for those times when they need help to woo customers.

Many lenders will say "yes" in order to keep your business. It always helps to ask.

Here's another tip: Rather than paying for a fresh appraisal, ask if you can use the same appraisal that was done when you first bought your home. Although lenders will normally not let you use "stale" appraisal data for a typical mortgage, they often allow this when issuing a home equity line of credit. Skipping the new appraisal process can save you hundreds of dollars in closing fees.

HELOCs and margins

As you check off items on your shopping list, always make a note of the HELOC margin. The margin is the amount that your lender can tack on to the prime interest rate, to determine the actual interest rate you'll pay after any introductory discounts expire. Get the lender to spell out exactly what the margin is on your particular HELOC. Then you can choose the lender who cuts the best deal, and not worry about any unforeseen surprises.

Home Equity Loan Tips

Although many business owners overlook this convenient source of money, home equity is one of the most affordable ways to fund a commercial venture. Taking out a home equity loan is one of the simplest and fastest ways to borrow money for any business. For those who have accumulated a significant amount of equity, this kind of loan is ideal for providing operating capital to a budding company.

Why consider a second mortgage for a business loan?

Business loans are generally scrutinized rather carefully. If the underlying venture fails, the lender may be left with an unpaid note and devalued collateral. People who are turned down in their attempts to secure a business loan are often discouraged, because it can mean doomsday for an otherwise potentially lucrative enterprise. But if you have equity in your home and can validate it through an official appraisal (which usually costs about $300 or less), applying for a home equity loan or second mortgage is a walk in the park.

Home equity loans or second mortgages to the rescue

While some of the closing costs and interest payments on a home equity loan are tax deductible, you can get additional tax perks by using the money for business. For instance, if your company is incorporated, you might consider taking out a personal home equity loan, and arranging a separate loan agreement for the venture itself. Lend the money to your own business, instead of going to a banker for a business loan. Your company can then provide the necessary funds to pay monthly interest and principal on the home equity loan. The corporation can deduct the repayment of the loan as a business expense. If revenues are good, you can tack on extra payments of principal to retire the loan early, which will return equity to your home on a faster schedule.

If the business decides to borrow again after the loan is repaid, you can tap into the same home equity source and repeat the process, without the headaches of trying to sell other investors on the idea that your business is a good one worthy of their attention.
This strategy allows you to keep the money "in house," in more ways than one. You'll also save on fees and get lower interest rates. Using a second mortgage to finance your company is simply smart business.

Home Equity Loan Tips

Are you bewildered by the staggering number of loans designed to let you tap into your equity? The options seem endless, but they don't have to be "too much of a good thing." The first step toward choosing the right home equity loan option is deciding how you want the money. The following loan choices are described in terms of whether you want money in a lump sum (ideal for short-term needs like home improvement projects or a vacation), or smaller, incremental withdrawals (perfect for college tuition payments).

Cash-Out Refinancing-Lump sum

If you're looking for a lump sum of money, and rates on first mortgages are low, the cash-out refinance is a great call. This involves refinancing your first mortgage and cashing-out a lump sum of equity. In this case, closing costs are higher than with a second mortgage. However, if rates for first mortgages are lower than what you currently hold, you could wind up with a hat trick: A lower monthly payment, long-term interest savings, and the cash you need. With a hat trick like that, your financial life won't be skating on thin ice.

Home Equity Loan-Lump sum

The home equity loan has a fixed rate and term, and, like its sister, the home equity line of credit (HELOC), is considered a "second mortgage." Because first mortgages must be satisfied "first," if a bank is forced to sell a house because of a loan default, lenders charge a slightly higher rate for second mortgages. However, if your first mortgage is at a low rate, the home equity loan might be just the ticket for a lump sum cash withdrawal.

Home Equity Line of Credit (HELOC)-Incremental withdrawals

A HELOC, like the home equity loan, carries a higher interest rate than a first mortgage. It's a popular choice for people who are looking to tap their equity for regular payments that spread out over time. Borrowers who need to make college tuition payments choose HELOCs because they work in a similar manner to credit cards: You have a pre-set credit limit, which you may draw upon when you need it. You're only charged interest on the amount you tap, and the rate is generally tied to the prime lending rate, which is relatively stable.

Home Equity Loan Tips

Did a cold chill run down your spine the last time you checked the interest rate on your home equity line of credit? Borrowers with HELOCs are feeling a little jittery these days because rates are heading in the wrong direction-up. HELOCs are tied to the prime interest rate, which has been traditionally stable until this most recent upturn.

To make matters worse, many HELOCs don't have the caps that you find with the standard Adjustable Rate Mortgage (ARM). ARMs generally have an upper tier to their rates, preventing the borrower from being locked into an absurdly high interest rate. HELOCs don't have that guarantee.

Solutions to rising HELOC rates

All this news may seem unsettling; but there are solutions if you're finding that the payments on your HELOC have become a financial strain. One solution is to transfer your short-term debt onto a long-term, fixed-rate mortgage. Here are a few reasons why a cash-out refinance of your first mortgage could provide you with the relief you need:

1.Lower payment: Since first mortgages tend to have lower interest rates than HELOCs, and because you're refinancing to a longer term, your monthly payment may decrease. This may be advantageous if you're going through some short-term financial troubles.

2.Less volatility: The best part about a cash-out refinancing is that you can lock in your rate and get a good night's sleep. No need to wonder what the Fed is going to do to the prime rate tomorrow-you're locked in.

3.Ability to prepay: Just because you've refinanced, you can still prepay your loan. Simply by increasing your monthly mortgage payment and stipulating that the money goes toward principal, you can whittle away at your mortgage debt.

Most financial experts will tell you that transferring short-term debt into long-term debt isn't a prudent move. However, if you're feeling handcuffed by the rise in the prime rate, paying off your HELOC with a cash-out refinancing might be the realistic decision you need to make.

Home Equity Loan Tips

Converting your HELOC to a Traditional Mortgage

Interest rates, like summer temperatures, are beginning to climb steadily, and most economists expect the Federal Reserve to continue raising them in order to curb the threat of inflation. As a result, many borrowers are looking for fixed-rate loans to replace their HELOCs. Today's interest rates are still at historically low levels, so those who take out traditional fixed rate mortgages for 15 to 30 years can lock in great rates. And those rates will endure for the life of the loan, no matter how high rates on adjustable loans may go.

Rising Rates and HELOCs

If you hold on to a HELOC, the interest rate will move upward to keep pace with the rise in the prime lending rate. Over time, you may see the gains you reaped, thanks to lower closing costs, negated by higher interest payments. For that reason, if you originally planned to keep a HELOC for a significant period of time, now may be the time to look into converting it into a conventional mortgage.

Most HELOCs are regulated, so that they can't rise sky high. In North Carolina, for instance, the law prevents them from rising above 16 percent. And if you think that's still pretty high, consider the fact that in most states, they top out at a regulated rate of 18 percent. Interest rates may not climb that high anytime soon; but the risk of a HELOC during inflationary periods is not much different than the risk of credit card borrowing. And credit card borrowing is hardly ever an inexpensive financial strategy.

The Cost of Closing

Although a conventional mortgage involves closing costs, those fees can be packaged into the mortgage, or "rolled into the loan," and paid off over time. For those who are really savings conscious, it may be best to pay the origination fees now and avoid paying interest on them over time. Within a short while, the closing costs will be more than offset by the fact that conventional fixed mortgages will likely have attractive interest rates and lower monthly payments. And many of the closing costs and other payments associated with conventional mortgages are tax deductible, adding to their value over time.

Home Equity Loan Tips

In an age when athletes give 110 percent, it's not surprising that banks are giving 125 percent. But there are few loans as notorious as the 125 percent home equity loan. And for good reason. Borrowers who have been sucked into the loan's clutches find themselves with much more than quick cash. They're also stuck with an extremely high interest rate and a home that, if sold, could leave them deeper in debt.

So how did such a scary little critter creep onto our financial landscape? To answer that question, you need to understand the 125 percent home equity loan.

Crash course in loan-to-value ratio (LTV)

A lender calculates LTV by dividing a loan amount by the property's appraised value. For example, if you have an $80,000 mortgage, and your home is worth $100,000, your LTV is 80 percent. Generally, loans with high LTVs will command higher interest rates. A lender has to consider how much it would cost to recoup its money if it were forced to foreclose on a house. The lower LTV ensures that a lender can get some equity out of the deal; there's no such guarantee, however, with a higher LTV loan.

With a 125 percent home equity loan, the lender actually lends you more than your home is worth. Because the LTV is sky-high, the loan comes with exorbitant interest rates (13-18 percent and higher) and booming monthly payments. Also, as you cross over the 100 percent LTV threshold, the government no longer allows you to write off the interest payments on your taxes.

Perhaps the biggest reason to avoid the 125 percent home equity loan is that you may be unable to sell your house if you want to move. Remember, you've borrowed more than your home is actually worth. If you want to move into a bigger, or even comparable, house, you'll need to pay off that extra debt you've incurred from the larger loan.

When the 125 percent home equity loan is right

When does this type of loan make sense? It may be an option if you're in dire financial straits as the result of an unforeseen medical emergency or some other severe setback, and the alternative would be to lose your house. A word of caution, however-if you do decide to take the loan, make sure you have a rigorous, disciplined payback plan. If you don't, you could easily fall victim to the downside that comes standard with every 125 percent home equity loan.

Home Equity Loan Tips

HELOC or Home Equity Loan?

A home equity line of credit-or HELOC-works like a credit card. Moreover, you can access it by using a card, a check, or some other means, depending upon the lending institution's policy. A HELOC is simple to establish and doesn't require the kinds of closing costs that accompany a first mortgage. The lender, in principle, promises to lend you a certain amount of money, and the loan begins the moment you draw any of the available funds. You can use the money as you please, and the interest rate is adjustable. A good choice for a home improvement project, the HELOC is particularly attractive when interest rates are low or in decline.

Rising rates and HELOCs

These days, following a long period of extremely low interest rates, the Federal Reserve is gradually hiking rates. What's more, all indications are that this policy of escalating costs for capital will continue for the foreseeable future. In an environment of higher interest, it often makes more sense to borrow money with a home equity loan, or second mortgage, instead of a HELOC. The benefits are numerous: many of the costs and interest payments are tax deductible; you can pay back the loan over a long period of time; and best of all, the interest rates are fixed, not adjustable.

The attractive home equity loan

With low rates still available (but probably not for long), people embarking on home improvement projects may find the home equity loan to be the most attractive option on the market. Whether you're considering a landscaping makeover, a new roof, or just a few fresh coats of paint, the best tool in your financial toolbox this summer may be the home equity loan.

Home improvement projects improve the quality of your life while you live in your home. At the same time, they are a sound investment for the future, because they add to the market value and equity of your property.

If you've been waiting to improve your home, this long, hot summer may be just the time to make the improvements that will make the long, cold winter more bearable and, potentially, more profitable.

Home Equity Loan Tips

Pay off Your Mortgage with Home Equity Loan

Home equity loans are sometimes ideal for those who have small balances remaining on their mortgages and want to avoid the cost associated with refinancing. If you only owe a few thousand dollars and can pay that all off at a lower rate without high fees, it can be a clever financial tactic.

Better than a mortgage refinance

Consider this scenario: A homeowner has property worth $300,000, and a 30-year, 8.5 percent conventional mortgage with an outstanding balance of only $30,000. If the homeowner decides to refinance in order to drop to a lower 6 or 7 percent rate, the mortgage refinance fees alone might cost five to 10 percent of the amount of the remaining balance. This would make a mortgage refinancing an unwise choice.

One smart solution to this problem would be to use a home equity loan and borrow the 30 grand. The mortgage can be entirely paid off without incurring steep refinance fees, and the process for securing the funds is relatively simple and fast when compared to ordinary refinancing.

Home equity loans are available from most lenders, and they can be paid off gradually, over a period of decades. For those who owe a relatively small amount on a high interest rate mortgage, converting to a home equity loan to pay off the balance may be a great way to save substantially over time, while also reducing the life of the loan. If you plan to retire in 15 years, for example, you can schedule the payoff of your home equity loan to coincide with retirement, in order to retire with extra savings and no house payment.

The versatile HELOC

Another alternative is to use a home equity line of credit, or HELOC. The big advantage with a HELOC is that, generally speaking, only payments of interest, not principal, are required during the first few years of the loan. That can significantly reduce monthly payments, in a similar way to the popular "interest only" mortgages. A HELOC will carry an adjustable rate, however. For those who expect rates to continue to rise and want to pay over a long period of time, a home equity loan with a fixed rate is a more predictable and worry-free option.

Paying off your mortgage with a home equity loan may seem strange. But in some circumstances, it may pay not to be a stranger to good financial sense.

Home Equity Loan

Use a Home Equity Loan

When you take out a loan to buy a second home, banks will scrutinize your credit reports and income documentation very closely. They want to ensure that you have sufficient income to meet all your obligations. But if you have a good credit score and a valuable first property to use as collateral, getting approval for a home equity loan is usually an easy process, and may be a less expensive and speedier one than opting for a traditional mortgage loan.

Advantages of Home Equity Loans

By using a home equity loan, you may be able to avoid some of the closing costs associated with originating a completely new and separate mortgage. There are also specific tax benefits, in the form of deductible expenses, which are allowed for those who take out home equity loans. If you do a little homework and crunch the numbers, you may discover that a second home is less expensive than you thought, and comes with interesting perks. One of the best benefits is that you can rent out your second home to tenants when you're not using it as a vacation property for your own family.

Second Home for Income Production

A second home can actually help you earn extra income. If you buy from someone who rented or leased the house for profit, you can prepare a financial statement based on the past income history of the property and show it to your lender. By reviewing the records, a bank or mortgage company will see that the property will probably not be a financial liability, but may actually add extra net income to your bottom line. You may also want to hire a professional appraiser to do an objective market analysis of the property. By comparing it side-by-side to similar income-producing properties in the same neighborhood, an experienced appraiser can ascertain a home's future income potential with remarkable accuracy.

If you're fortunate enough to be able to afford a second home, you're smart enough to investigate a variety of ways to pay for it. A home equity loan may be the most intelligent way to go. To paraphrase an old expression, "Home is where the equity is".

Home Equity Loan Tips

Your home's equity can be one of the best ways to find capital when funds are scarce. And the best way to tap into this equity is with a home equity line of credit (HELOC), which gives you the flexibility of a credit card and the tax-deductions of a mortgage. Since a HELOC allows you to draw funds for myriad reasons, it has become the Swiss Army Knife of financial instruments.

One credit line, many uses
Popular reasons to tap a home's equity include home improvement, debt consolidation, a second home purchase, vacations, and college tuition. Many small business owners will opt to use a HELOC instead of applying for business loans, because the process is easier and less expensive.
In recent years, debt consolidation has proven to be an extremely popular use for the HELOC.

It can drastically reduce a borrower's monthly payment by offering lower interest rates than credit cards. On the flip side of the coin, people who are debt-free often use the HELOC to buy a car, taking advantage of the tax-deductibility of the interest payments.

Rainy day fund
It's a basic rule of thumb to keep three to six months of living expenses stowed away in a liquid account as a rainy day fund. Even though it's a great savings habit, consumers are forsaking savings, and using a HELOC as a source for emergency funds. If you choose this route, make sure the lender you select doesn't charge a fee just to keep the line of credit open. Just because you have a rainy day fund doesn't mean the institution should rain on your parade.

Fee Free
HELOCs can be fee-free. Avoid a lender who wants to charge you for writing checks or proposes exorbitant closing costs. Some lenders might require an appraisal; but there are plenty of lenders who will waive the appraisal fee. The cost of writing checks should also be free of charge.

Convert to a fixed-rate loan whenever you want
Since HELOCs are tied to short-term interest rates, they may rise suddenly. If they do, you may find that a fixed-rate home equity loan can save you money in interest payments over the long-term. If you choose to convert, expect a higher monthly payment. There may also be additional closing costs, so do the math to see if this move is right for you.

These features, as well as caps on interest rate increases and no prepayment fees, are all versatile benefits that underscore the HELOC's Swiss Army Knife reputation. About the only thing you can't do with it is whittle, or use it to spoon up beans by the campfire. Short of those tangible benefits, the HELOC could be the versatile borrowing tool for just about anything you need.

Home Equity Loan Tips

How Much Should You Borrow?

If you need extra cash, a home equity line of credit may be the right instrument for you. It gives you the flexibility you need, with minimal closing costs and the option to pay interest only for the first five to 15 years. However, you must decide the amount that's appropriate to borrow.

Setting Your Limits
The HELOC limit depends on how much equity you own in your home. Let's say the house appraises at $200,000. If your first mortgage balance is $80,000, your equity is $120,000. A second loan that's secured by this equity, such as a home equity loan or a home equity line of credit, can usually have a credit limit as high as 80 or 90 percent of this equity. For our example, we'll opt for a 90 percent HELOC, which would enable you to apply for a maximum credit line of $108,000.

One very important thing to remember is that a home equity line of credit is not a traditional loan. You don't apply for a loan amount, technically speaking, but rather for a credit limit. Once the credit line has been approved, you can treat it like a credit card. Borrow the money when you need it, and replenish it when you can. In the meantime, all you need to pay is interest on the amount you borrow. You're under no obligation to borrow every last cent of that line of credit-though you can if you need to.

How To Use Your Credit
It may be best to simply apply for the maximum amount that you qualify for. This way, you have a cushion to protect you in case of emergencies. You may not need all of that money now, but it's there if you need it later. Closing costs for HELOCs are minimal. However, many states require that you pay a one-time mortgage tax at closing. The higher the credit line, the higher the tax. As a result, you may not want to opt for the maximum amount.

There also may be direct benefits to establishing a high credit line, even if you don't plan to use most of it. Credit bureaus like seeing lots of available credit that you haven't used. A largely unused HELOC may, therefore, improve your credit score.

Once you're approved for your credit line, you still don't have a license to go out and spend it all. Every dollar spent will eventually have to be repaid-with interest. Get the highest credit limit you feel comfortable with. Then be disciplined about how you use it. Your wallet will thank you later.

Home Equity Loan Tips

Using a Home Equity Line of Credit for College Tuition

There's nothing as exhilarating to parents as the thought of their child heading off to college. But it can be equally depressing financially. That's because college tuition rates are skyrocketing. Annual tuition increases of nearly 10 percent at public universities are easily out-pacing inflation's long-term 3 percent average yearly increase. Tapping into retirement accounts for tuition might jeopardize retirement plans. As a result, parents are turning to HELOCs for tuition help.

Say Hello to a Home Equity Line of Credit
A HELOC is a line of credit borrowed against the equity on your house. It differs from a home equity loan in that you don't need to borrow the entire lump sum at once. You borrow the money when you need it. Suppose you need $3,000 for tuition, and you have a $10,000 home equity line of credit. Simply take out the $3,000, which allows you to avoid paying interest on a large, lump-sum loan.

The interest rate on a home equity line of credit is adjustable, and generally tied to the prime interest rate. If the prime rate go up, so does your interest rate. However, the prime rate is generally not as volatile as some indices, and many HELOCs can be converted to a fixed-rate loan if you can't stomach the interest-rate uncertainty. And you can take heart in knowing that the interest you pay on a home equity line of credit is tax deductible.

Flexibility Today, Retirement Tomorrow
The beauty of the HELOC is its flexibility. Basically, the closing costs are minimal to open a home equity credit line, and access to funds is simple. Write a check, or perform a web-based transfer through your financial institution. Presto, you've got college tuition covered.

There's also a growing school of thought that believes that using a HELOC for college tuition is a prudent move if your college savings are coming at the expense of your retirement funding. Keep in mind that if you have many years between now and retirement, you can always earn more money to pay off a HELOC. No one, however, will lend you money to fund your retirement.

When you're considering how to pay for your child's college education, do plenty of research and find out how much you'll need to save. If you can save plenty for retirement and sock away a little each month for the rapidly expanding tuition, you're in a good spot. But if you find that you need to borrow money, the flexible HELOC might be just the ticket to help finance your child's college adventure.

Home Equity Loan Tips

Using a Home Equity Line of Credit to Reduce Debt

A home equity line of credit is a loan that is taken against the equity in your home. In practice, however, it operates more like a credit card than a mortgage. The collateral on the loan is your house and, depending upon where you live, local lending laws will regulate how much you can borrow.

The interest charged on a HELOC is usually equal to the prime rate plus an additional amount charged by the lender. The better your credit rating, the more attractive the interest rate generally will be. Therefore, it pays to shop around and find the best deal in town. At MortgageLoan.com, we can help you connect to a lender who can help you meet your specific needs.

Home Equity Line of Credit vs. Credit Cards
How is a home equity line of credit different from a card line of credit? First, you're borrowing against the equity in your house. Whereas your credit card limit might top-out after you spend a few thousand dollars, a HELOC might be worth almost as much as your house. If, for example, your home equity line of credit is $150,000, you can borrow that amount and use it for whatever you want.

Your HELOC will have an adjustable rate, and the rate is normally calculated based on the going rate at the time you withdraw funds. You decide when you want to use the HELOC, and then access your credit line by writing a check or using a special debit card.

Debt Consolidation through a HELOC
One of the most popular uses of a home equity credit line is to consolidate high-interest credit card balances, and pay them off before the penalties, interest payments, and annual fees become an unwieldy burden. Many homeowners go into debt while paying for necessities, like furniture, landscaping, and appliances. Soon, they have maxed-out their credit cards, and the outrageous interest rates charged by credit card companies accelerates until the debt is out of control. By using a HELOC, it's possible to pay off all credit cards, and replace them with a single, easy-to-manage loan. And the HELOC can be paid off gradually, over a long period of time.

Home Equity Loan Tips

Home Equity loan rates

Home equity loan rates fluctuate daily just as all mortgage rates. They also rise in tandem with interest rates set by the Federal Reserve, which has raised rates 15 consecutive times since rates hit 40-year lows in 2004. Home equity rates are important, however, if you are serious about entering into a home equity loan you must examine any particular loan program in its entirety. Most home equity loans come with variable interest rates, some come with low introductory rates that can jump up after a set time period, and few come with fixed rates. Home equity loans and their rates and fees differ greatly from program to program so it pays to speak with several lenders and expose yourself to a number of different programs. Mortgageloan.com can put you in touch with the loan professionals you need to compare rates, loan programs, and perform the necessary due diligence to find the right home equity loan program.

Money costs money, but how much?
With all the different ways home equity loans are structured it can sometimes be tough to understand how much money you are spending on the actual loan. Some loans have upfront fees while others have a balloon payment at the end of the loan's life. Home equity loan rates can fluctuate greatly throughout the life of the loan as most home equity loans are not fixed. Many offer very low introductory rates that can jump up after that introductory period is over; be sure to understand the periodic cap and lifetime cap, they are the limits that specify the amount the interest rate can change during one period and the entire life of the loan respectively.

When looking at different home equity loan rates check the Annual Percentage Rate (APR) which indicates the cost of credit on a yearly basis. Remember that the advertised APR for home equity loans is based on interest alone, to get the full picture you must look at all fees associated with the loan such as points and closing costs. This is especially important when looking at a home equity credit line versus a traditional 2nd mortgage, where the APR includes the total credit costs for the loan.

Differing rates, programs and more
The range differing home equity loan rates and the programs in which they are structured can be quite exhausting. This is why when choosing a home equity loan it really pays to speak with multiple loan professionals and expose yourself to several programs. Compare home equity loan rates today with MortgageLoan.com's free quote service to put yourself on path to finding the right home equity loan for you.

Home Equity Loan Tips

It's a good idea to have an emergency fund to fall back on in case you encounter unanticipated financial difficulties. Three to six months' worth of living expenses is the commonly accepted rule of thumb. Do you have these funds set aside in case an unforeseen disaster makes an unexpected appearance?

Flexible Power
An emergency fund doesn't necessarily need to be all in cash. A home equity line of credit is a savvy alternative. With a HELOC, you get direct access to your home equity in case you ever need it; but until you actually use it, there are no payments, interest, or debt. That flexibility is the strongest argument for this type of financial instrument.

When you do run into one of life's not-so-little surprises and start drawing from your credit line, you may appreciate the low interest rate that a HELOC carries. It's generally much lower than credit cards, and often better than traditional home equity loans. And, in most cases, you're only required to make interest payments during the first few years of your borrowing (the "draw period"). While it's still a smart long-term choice to pay down the actual balance, the pressure on your finances during times of need is more bearable when you have lower payments.

In the Interest of Interest
A HELOC will have an adjustable interest rate. As the federal lending rate rises, so does your interest rate. In a rising interest rate environment, this can become expensive. On top of that, your repayments will be larger the more you draw from the credit line; so this option may not be for you if you require absolutely predictable monthly payments.

Since your home equity line of credit is secured against your home, some or all of your interest payments may be tax deductible. It depends on the home's value and the existence of other equity debt. Ask a financial professional whether your interest payments will qualify.

If you have a lot of equity in your house, the credit limit on a HELOC can be very high, which makes it perfect for emergency use. You'll be able to handle most of what life throws at you.

Finally, you don't want to pay a lot of fees for an emergency fund. Look around for a HELOC with low or no closing costs, no fees for actually using the credit, and no early repayment fees. Getting a leg up on financial flexibility doesn't need to cost you an arm and a leg.

Home Equity Loan Tips