The most common type of home equity loan is the term loan.
This loan is set for a fixed amount of time, anywhere from five to fifteen years. Such loans are typically granted for up to 80% of the value of the home, but some lenders will lend up to 125% of the home’s value. Is this type of loan right for you?
The term loan works best for those who need to borrow a fixed amount of money for a specific purpose – paying for a wedding, a home remodeling project, a fixed educational expense, or debt consolidation. This would give the borrower a fixed repayment schedule, where he or she would pay a set amount of money each month for a specific period of time. An increasingly popular alternative to the home equity loan is a line of credit.
This type of loan works like a credit card, and has a revolving line of credit, in which the borrower may borrow against the principal more than once over the life of the loan. The borrower is usually given special checks that he or she may use to write checks against the loan amount. The borrower may borrow a little at a time, or borrow all of the loan amount at once. Unlike the term loan, the interest rate on lines of credit tends to be variable.
This type of loan works best for recurring expenses – a complicated remodeling project accomplished in several stages, or a recurring educational expense such as annual tuition. Each type of loan has its advantages and disadvantages; you simply need to decide if you want a fixed interest rate and fixed payments, or more flexibility in terms of when and how you pay.
Your needs will determine which type of loan is best for you. Either way, under current Federal law, the interest on a second mortgage is deductible from your income taxes up to $100,000.
Sunday, June 3, 2007
Monday, April 9, 2007
Home Equity Loan-Which One is Best for You?
Home equity is the difference between what your home is worth and the amount you owe on it. For most homeowners their home is their biggest asset and it usually represents a treasure trove of cash. In 2005 the value of home equity across the US was $11.3 trillion. The percentage of home ownership in 2005 was 69% down slightly from the record 69.2 % in 2004. Almost 124 million Americans own their own home.
When it comes to borrowing money using your home as collateral (home equity) there are basically only two ways to go aside from a reverse mortgage: a Home Equity Loan Line of Credit (HELOC) or a second mortgage. Which one is best for you?
Second Mortgage Home Equity Loan The second mortgage takes the guess work out of how much your payment will be every month-for many a huge factor.
* Cash disbursed up front
* Proceeds are fixed
* Fixed term
* Fixed monthly payments
* Fixed Interest rate
Home Equity Loan Line of Credit Can be used as needed but has several unknowns which can be risky, e.g., how much will my payment be next month?
* Cash disbursed on demand
* Proceeds are variable-like a revolving line of credit
* Variable Interest rate
* Variable monthly payments
* Fixed term
Both loans are secured by second mortgages on the property. The terms of these loans can range from five to twenty years. They are almost always shorter than a first mortgage loan.
The differences on paper seem minimal. The biggest is the interest rate which makes the second mortgage loan more stable, reliable, and preferable over the HELOC especially in a dynamic market.
If you are in the market to borrow money against the equity in your home:
1. Do your homework. Research and study what you are doing.
2. Find the right lender. More research and study.
3. Negotiate fees and points. Pit one lender against the other for your business.
4. Get a second mortgage loan instead of a HELOC.
Remember there is a lot at stake. Don't press the "EASY" button.
Jack Krohn is a leading free lance writer on Home Equity and Mortgage issues with over 35 articles to his credit. He is also the #1 author of Home Security Articles in the country according to Ezine Articles.
When it comes to borrowing money using your home as collateral (home equity) there are basically only two ways to go aside from a reverse mortgage: a Home Equity Loan Line of Credit (HELOC) or a second mortgage. Which one is best for you?
Second Mortgage Home Equity Loan The second mortgage takes the guess work out of how much your payment will be every month-for many a huge factor.
* Cash disbursed up front
* Proceeds are fixed
* Fixed term
* Fixed monthly payments
* Fixed Interest rate
Home Equity Loan Line of Credit Can be used as needed but has several unknowns which can be risky, e.g., how much will my payment be next month?
* Cash disbursed on demand
* Proceeds are variable-like a revolving line of credit
* Variable Interest rate
* Variable monthly payments
* Fixed term
Both loans are secured by second mortgages on the property. The terms of these loans can range from five to twenty years. They are almost always shorter than a first mortgage loan.
The differences on paper seem minimal. The biggest is the interest rate which makes the second mortgage loan more stable, reliable, and preferable over the HELOC especially in a dynamic market.
If you are in the market to borrow money against the equity in your home:
1. Do your homework. Research and study what you are doing.
2. Find the right lender. More research and study.
3. Negotiate fees and points. Pit one lender against the other for your business.
4. Get a second mortgage loan instead of a HELOC.
Remember there is a lot at stake. Don't press the "EASY" button.
Jack Krohn is a leading free lance writer on Home Equity and Mortgage issues with over 35 articles to his credit. He is also the #1 author of Home Security Articles in the country according to Ezine Articles.
Tuesday, March 27, 2007
How A Home Equity Line Of Credit Can Help Your Finances
A home equity line of credit unlocks your home’s value so it can work for you. Owning your home can provide you with a financial resource that can help you with your financial needs.
Since equity is the value of your home minus the remaining mortgage outstanding, you may be sitting on the cash that you can use to improve your financial situation, renovate your home or go on that vacation you’ve always dreamed of.
Why Would You Want a Home Equity Line of Credit?
A line of credit is not like a typical loan which provides a lump sum of money to you and then begins charging you interest at a fixed rate until repaid. Instead, it acts like revolving credit (much like your credit card). You only use as much or as little as you want and you only pay interest on the amount you have used. Also, like a credit card, when the debt is repaid you still have access to the credit. In contrast, with a typical loan, you would be paying interest on the full amount of the loan. And when a loan is paid off, you no longer have that credit available to you – you would have to reapply for a new loan.
The main feature of a home equity line of credit is providing you greater flexibility at accessing credit with the least cost. Not only can you access the credit only as you need it, but your monthly payments reflect only the balance you used. So the less you use of it, the lower your payment. Some lines of credit require you to only the interest as the minimum payment. This feature can be helpful when finances are tight. (Be careful, it takes discipline not to use this feature to fuel spending habits).
A home equity line of credit is great when you don't have a large fixed amount to spend in one place. While you can find many uses for your line of credit, here are some more common reasons for obtaining a home equity line of credit.
Consolidate Debt
One of the more important uses for your home equity line of credit is to consolidate debt. You can eliminate the stress of multiple bills and also receive a more favorable interest rate or tax benefit.
Second Mortgage
You may come across a time when you find your mortgage interest rate higher than your home equity line of credit’s interest rate. If that is the case, then using your line of credit to pay off the existing mortgage for better interest rates makes sense.
Home Renovations, Additions
You may use your line of credit for renovating or building that new addition to your home. You pay less interest than you would if you used a credit card and that makes it a wise financial choice.
When Should You Not Use a Home Equity Line of Credit?
Before making hasty decisions with your new found money source, it’s important to evaluate the additional risk.
Some debts have features that you may not be entitled to if you switch them to an equity line of credit. A perfect example is your student loans. They are subject to special conditions that if changed by you, can cost you. You need to check into your student loan terms and conditions before considering moving them.
With the feature to pay only the interest you may lack the motivation to pay off the debt and end up paying only the interest for a long time. When this happens, you end up owing for items that have lost their value over time. It makes more financial sense to avoid using your line of credit to buy items that depreciate and focus on items that will increase in value overt time. Also, make plans to pay off the debt quickly for the most advantage.
Lines of credit take advantage of current low interest rates which means they are subject to fluctuating interest rates. If you need larger financing that will take a long time to pay off, you may find that regular loans protect you better. A fixed rate loan can provide piece of mind knowing that your monthly payments are not going to increase as interest rates go up.
Using your finances wisely can give you great relief and freedom. Before taking on any financial obligations it is important to understand the risks as well as the benefits.
About The Author
Thomas Erikson is co-founder of http://www.your-debt-consolidation-loan.com which provides http://www.your-debt-consolidation-loan.com/home-equity-line-of-credit.html information and solutions.
Since equity is the value of your home minus the remaining mortgage outstanding, you may be sitting on the cash that you can use to improve your financial situation, renovate your home or go on that vacation you’ve always dreamed of.
Why Would You Want a Home Equity Line of Credit?
A line of credit is not like a typical loan which provides a lump sum of money to you and then begins charging you interest at a fixed rate until repaid. Instead, it acts like revolving credit (much like your credit card). You only use as much or as little as you want and you only pay interest on the amount you have used. Also, like a credit card, when the debt is repaid you still have access to the credit. In contrast, with a typical loan, you would be paying interest on the full amount of the loan. And when a loan is paid off, you no longer have that credit available to you – you would have to reapply for a new loan.
The main feature of a home equity line of credit is providing you greater flexibility at accessing credit with the least cost. Not only can you access the credit only as you need it, but your monthly payments reflect only the balance you used. So the less you use of it, the lower your payment. Some lines of credit require you to only the interest as the minimum payment. This feature can be helpful when finances are tight. (Be careful, it takes discipline not to use this feature to fuel spending habits).
A home equity line of credit is great when you don't have a large fixed amount to spend in one place. While you can find many uses for your line of credit, here are some more common reasons for obtaining a home equity line of credit.
Consolidate Debt
One of the more important uses for your home equity line of credit is to consolidate debt. You can eliminate the stress of multiple bills and also receive a more favorable interest rate or tax benefit.
Second Mortgage
You may come across a time when you find your mortgage interest rate higher than your home equity line of credit’s interest rate. If that is the case, then using your line of credit to pay off the existing mortgage for better interest rates makes sense.
Home Renovations, Additions
You may use your line of credit for renovating or building that new addition to your home. You pay less interest than you would if you used a credit card and that makes it a wise financial choice.
When Should You Not Use a Home Equity Line of Credit?
Before making hasty decisions with your new found money source, it’s important to evaluate the additional risk.
Some debts have features that you may not be entitled to if you switch them to an equity line of credit. A perfect example is your student loans. They are subject to special conditions that if changed by you, can cost you. You need to check into your student loan terms and conditions before considering moving them.
With the feature to pay only the interest you may lack the motivation to pay off the debt and end up paying only the interest for a long time. When this happens, you end up owing for items that have lost their value over time. It makes more financial sense to avoid using your line of credit to buy items that depreciate and focus on items that will increase in value overt time. Also, make plans to pay off the debt quickly for the most advantage.
Lines of credit take advantage of current low interest rates which means they are subject to fluctuating interest rates. If you need larger financing that will take a long time to pay off, you may find that regular loans protect you better. A fixed rate loan can provide piece of mind knowing that your monthly payments are not going to increase as interest rates go up.
Using your finances wisely can give you great relief and freedom. Before taking on any financial obligations it is important to understand the risks as well as the benefits.
About The Author
Thomas Erikson is co-founder of http://www.your-debt-consolidation-loan.com which provides http://www.your-debt-consolidation-loan.com/home-equity-line-of-credit.html information and solutions.
Saturday, March 3, 2007
Learn How To Invest Correctly In Home Line Of Credit
Money is one of the elements that easily comes and goes just as easily.
If you have a home, you want to make sure that the flow of money coming and leaving is to your advantage.
By investing in a home equity line of credit, you will have the ability to invest, finance and profit off of what you are able to have in property value.
A home equity is where one can borrow against their own home with the loan that they are using.
It will allow you to take out a second loan in order to consolidate debt and pay off major parts of your loan. When this is in a line of credit, the way in which the transaction is made will differ.
A regular home equity loan will give you a sum of money at one time.
When this is in a line of credit, it will shift the balance as you pay the loan back. During the loan period, you can borrow a certain amount, much like a credit card.
With a line of credit, you can borrow what you need at certain times or leave parts of the loan in the bank.
The major advantage of having a home equity line of credit is that you can use it like a credit card.
This means that you can use as much or little as you need at one time, and pay back the line of credit at your own convenience.
If you don't use the full line of credit, you can use the extra amount of money later on in order to make more investments.
If you sell your house, you only responsible for what you have spent with your line of credit.
The major advantage of using home equity like credit is that it won't be as risky as other types of home equity loans. Because you can take it in any type of dose that you want, it will give you the ability to spend as you need and pay back as you want.
For anyone wanting to make a little more of an investment in order to add onto their home, or for other reasons, this is a great way to do it.
If you have a home, you want to make sure that the flow of money coming and leaving is to your advantage.
By investing in a home equity line of credit, you will have the ability to invest, finance and profit off of what you are able to have in property value.
A home equity is where one can borrow against their own home with the loan that they are using.
It will allow you to take out a second loan in order to consolidate debt and pay off major parts of your loan. When this is in a line of credit, the way in which the transaction is made will differ.
A regular home equity loan will give you a sum of money at one time.
When this is in a line of credit, it will shift the balance as you pay the loan back. During the loan period, you can borrow a certain amount, much like a credit card.
With a line of credit, you can borrow what you need at certain times or leave parts of the loan in the bank.
The major advantage of having a home equity line of credit is that you can use it like a credit card.
This means that you can use as much or little as you need at one time, and pay back the line of credit at your own convenience.
If you don't use the full line of credit, you can use the extra amount of money later on in order to make more investments.
If you sell your house, you only responsible for what you have spent with your line of credit.
The major advantage of using home equity like credit is that it won't be as risky as other types of home equity loans. Because you can take it in any type of dose that you want, it will give you the ability to spend as you need and pay back as you want.
For anyone wanting to make a little more of an investment in order to add onto their home, or for other reasons, this is a great way to do it.
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