HOME Equity Loan Information - A Consumer Guide To Home Equity
business monetary articles new monetary business opportunities finance monetary deposit money monetary making art loan monetary deposits make monetary your home good income monetary outcome issue medicine monetary drugs marken monetary money trends self monetary roof repairing market monetary online secure monetary skin tools wedding monetary jewellery newspaper monetary for magazine geo monetary places business monetary design Car monetary and Jips production monetary business ladies monetary cosmetics sector sport monetary and fat burn vat monetary insurance price fitness monetary program furniture monetary at home which monetary insurance firms new monetary devoloping technology healthy monetary nutrition dress monetary up company monetary income insurance monetary and life dream monetary home create monetary new business individual monetary loan form cooking monetary ingredients which monetary firms is good choosing monetary most efficient business comment monetary on goods technology monetary business secret monetary of business company monetary redirects credits monetary in business guide monetary for business cheap monetary insurance tips selling monetary abroad protein monetary diets improve monetary your home security monetary importance

Home Equity Loan - Tour by FAQ's

What is home equity?

Home equity is the part of your home that you actually own. You can calculate your home equity by taking your home’s value and subtracting your mortgage. If your home is valued at $200,000 and you have a $50,000 mortgage, your home equity is $150,000.

What is a home equity loan?

A home equity loan is loan that is secured by your home. If you default on a home equity loan, you could lose your home.

What is a second mortgage?

A second mortgage is another name for a home equity loan. The mortgage on your home is your first mortgage and a home equity loan is your second mortgage.

What are the advantages of a home equity loan?

The two major advantages of a home equity loan are a lower interest rate and tax savings.

The interest rate you pay on your average home equity loan is lower than the interest rate you will pay on your average credit card by 7% to 10% or more. Home equity loans also have a lower interest rate than personal loans and other types of non-secured debt.

For home equity loans, you can generally deduct the interest you pay on the first $100,000 you borrow. For purposes of home improvement or to buy another home, you can deduct even more. The interest you pay on a credit cards and personal loans is generally not tax deductible.

What are the disadvantages of a home equity loan?

Your home is on the line and if you default on payments you could lose your home. There is a cost to take out a home equity loan – you will pay money both in interest and fees when you take out a home equity loan.

What can I use a home equity loan for?

You can use a home equity loan for anything. Common uses include debt consolidation (paying off high-interest credit card debt), home improvements, paying for an education and buying luxury items. You can also use a home equity loan to pay for medical emergencies or as a business investment to buy another piece of property.

Are there good and bad uses for a home equity loan?

Yes. Good reasons to take out a home equity loan are for debt consolidation, home improvements or to a pay for an education. Your money grows. Poor reasons to take out a home equity loan are to buy luxury items or to fund living expenses. Your home equity is spent on something that depreciates.

How much can I borrow?

Lenders will let you borrow up to 80% of your home’s value minus your mortgage. This means that if your home is worth $100,000 and you have a mortgage of $50,000, you will be allowed to borrow $30,000 ($100K * 80% - 50K=30K). The lender is allowing you to borrow up to a loan-to-value (LTV) ratio of 80%.

Almost all lenders will allow an 80% LTV, some lenders allow an 80% to 90% LTV, and some lenders even go as high as an LTV of 125%. As you go above an 80% LTV, the cost of the loan will increase because of greater risk to the lender.

How long will a home equity loan take to close?

You should be able to close a home equity loan two to three weeks after application.

What will lenders look at if I apply for a home equity loan?

Lenders will look at your credit history, how much you are borrowing compared to how much equity you have, how much you spend each month to pay other debts, your employment history and what you plan to do with the loan. More on what lenders look for.

What are the types of home equity loans?

There are two types of home equity loans: a standard home equity loan (also called a term loan, a closed-end loan or a second mortgage installment loan) and a home equity line of credit.

A standard home equity loan is a like a traditional loan in which you are loaned a lump sum of money and you pay that money off in fixed payments at a fixed interest rate over the life of the loan. More on standard home equity loans.

A home equity line of credit works like any other line of credit but this one is secured by your home. You have a maximum amount you can borrow. The interest rate is variable and you pay interest on only the amount borrowed. You credit is revolving which means that as you pay off borrowed money, you can borrow that money once again. More on home equity lines of credit.

Is there any other way I can borrow from my home equity?

Yes. Cash-out refinancing is not a home equity loan but it does let you borrow from your home’s equity. In cash-out refinancing, you refinance your mortgage for an amount that is greater than your mortgage. The difference between your new mortgage and your old one is a home equity loan.

Let’s say your home is worth $200,000 and you have a $50,000 mortgage. If you refinance your mortgage at today’s low interest rates for an amount of $70,000, you can pay off your old mortgage of $50,000 and the difference of $20,000 is your home equity loan. You now have a new mortgage of $70,000. More on cash-out refinancing.

What are the advantages and disadvantages of the different ways I can borrow from my home’s equity?

Home equity loans are more stable since they have a fixed interest rate and payments. The also have less fees and charges than home equity lines of credit. The amount of money that you will pay in interest is fixed and this is very advantageous to those who may lack financial discipline. Home equity loans are suited to borrowing large sums in which the entire amount is needed up front.

Home equity lines of credit are useful when you need money at intervals or you do not know how much you will pay. Home equity lines of credit are also useful when you borrow a small amount and pay it back quickly. Two use of a home equity line of credit might be to pay a college tuition or for an open-ended repair job. Home equity lines of credit can result in an undesirable ‘balloon’ payment if only minimum or partial payments are made. Home equity lines of credit should not be used for debt consolidation. Home equity lines of credit generally have a lower interest rate than fixed-rate home equity loans.

Refinancing has the advantage of a lower interest than a home equity loan but it has the disadvantage of having higher closing costs. A home equity loan generally has a shorter term than refinancing a mortgage. Refinancing usually takes a few weeks longer to close than a home equity loan. More on which home equity loan type is right for me.

What is a balloon payment?

A balloon payment is a lump sum payment that is due to clear an outstanding balance at the end of the life of a home equity loan. A balloon payment can be created if you take out a home equity line of credit and you have made minimum or partial payments on the amount owing. When your home equity line of credit expires, you owe a ‘balloon’ payment to clear the outstanding balance.

A balloon payment is often thousands of dollars and should be avoided. To make the balloon payment may have to sell your home, take out another loan or refinance the balloon amount, or come up with a large sum of money somehow. More on balloon payments.

What are the costs involved in taking out a home equity loan?

The money paid in interest is normally the biggest cost in a home equity loan. You will also pay fees which consist of points and closing costs. Points are one time fees that are paid at closing – one point is one percent of the loan amount. Closing costs will include costs for such things as attorney fees, appraisal fees, credit report fees and mortgage preparation fees. Closing costs are usually between 2% to 5% of your loan amount. More on loan costs.

Why would I not want a ‘no closing cost’ option?

A ‘no closing cost’ option can mean that you are not paying closing costs up front or your interest rate has increased. If you are financing your closing costs, you will pay more in closing costs since you are now paying interest on top of your closing costs. Make sure you understand the exact implications of this option.

How can I compare different loans?

The APR, or annual percentage rate, is the single most important thing to compare when shopping for a home equity loan because it takes into account both interest and fees. The APR, which is expressed as a yearly rate, factors in the loan interest rate and all fees paid to obtain the loan. Generally, the lower the APR, the lower the cost of your loan. When comparing APR’s between loans, make sure the other terms and conditions of the loans are the same.

You cannot compare the APR of a home equity loan to the APR of a home equity line of credit. This is because the APR of home equity loan takes into account the interest rate and all fees paid whereas the APR for a home equity line of credit takes into account only the interest rate – fees in a home equity line of credit are not factored into the APR.

Are there loan terms to be aware of?

Yes. A pre-payment penalty, credit insurance, and an interest rate increase in cases of default can make a loan more expensive.

A pre-payment penalty is a penalty paid to the lender if you pay off the loan early. Credit insurance, which is always optional, can pay off the loan if you die. An interest rate increase in cases of default increase the loan interest rate for the rest of the loan term if you miss a payment or pay late. If these terms are in your loan, make sure you understand them. More on unfavorable loan terms.

Are there things to be aware when shopping for a loan?

Yes. Some dishonest lenders will seek to make maximum profit at your expense. They may help you get a loan you can’t afford or overcharge you for your loan. Beware of these shady dealings.

Are there things I must do when shopping for a loan?

Yes. Negotiate and comparison shop and let your lender know you are doing so.

Lenders and brokers may offer different prices for the same home equity loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

When you have received a loan offer, ask the lender for at least one of the following: 1) lower the interest rate, 2) waive or reduce one or more of its fees, 3) lower points. Make sure that the lender is not agreeing to lower one fee while raising another or to lower the rate while raising points.

Comparison shop to make sure your loan offer is at least a reasonable one.

What must I do at closing?

Make sure you read and understand the entire loan document – do not just glance over the paperwork. Try to read the loan documents before you meet to sign the papers. If you are not comfortable with the terms and you can’t have them changed, don’t sign.

You must know that you also have three days after you sign the loan papers to change your mind and cancel the loan for any reason. More on closing the deal.



The Basics
Shopping for a Loan

The Do's

The Don'ts

What You Must Know

More Information:

Tour by FAQ's

Case Studies

Online Lender Reviews


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




Home Equity Loan Information - Home Equity Loan Basics - Shopping for a Home Equity Loan - Home Equity Loan Do's - Home Equity Loan Don'ts - What You Must Know - More Information - Online Lender Reviews - The Mortgage Directory - Real Estate Directory - Contact Us

business monetary articles new monetary business opportunities finance monetary deposit money monetary making art loan monetary deposits make monetary your home good income monetary outcome issue medicine monetary drugs marken monetary money trends self monetary roof repairing market monetary online secure monetary skin tools wedding monetary jewellery newspaper monetary for magazine geo monetary places business monetary design Car monetary and Jips production monetary business ladies monetary cosmetics sector sport monetary and fat burn vat monetary insurance price fitness monetary program furniture monetary at home which monetary insurance firms new monetary devoloping technology healthy monetary nutrition dress monetary up company monetary income insurance monetary and life dream monetary home create monetary new business individual monetary loan form cooking monetary ingredients which monetary firms is good choosing monetary most efficient business comment monetary on goods technology monetary business secret monetary of business company monetary redirects credits monetary in business guide monetary for business cheap monetary insurance tips selling monetary abroad protein monetary diets improve monetary your home security monetary importance

Alberta - Calgary - Edmonton - British Columbia - Vancouver - Manitoba - Winnipeg - New Brunswick - St. John - Newfoundland - St. John's - Nova Scotia - Halifax - Ontario - Toronto - Ottawa - Hamilton - London - Mississauga - Brampton - Prince Edward Island - Quebec - Montreal - Quebec City - Saskatchewan - Regina

Home Equity Loan Information uses reasonable efforts to ensure the accuracy of the information posted on this web site. We make no guarantees or warranties, either expressed or implied, with respect to the information on this site. You hereby acknowledge that any use or reliance of information on this site shall be at your sole risk. You are solely responsible for any agreement you enter with a third party including any party you linked to from this site. Information on this site is subject to change without notice and is only intended for consumers in the U.S. home equity market.

Copyright © 2003 - 2004 Home Equity Loan Information