Home Equity Loan Information

Use A Home-Equity Loan If Your Credit Score Is Excellent

2005-12-15T00:58:00.000-08:00

"Question: In January, I will put my condo on the market for sale. It should bring about $325,000. With the proceeds from the sale, I want to pay cash to buy a patio-garden home for about $150,000.

If I find a property to buy before my condo sells, what type of loan should I seek? I have no mortgage and have an excellent credit rating. I was told by a loan officer to apply for a mortgage on my condo, but the settlement costs seem outrageous. What should I do?"

Answer [Orlando Sentinel]

Use Bad Credit Home Loan To Get Funds Despite Poor Credit Ratings

2005-11-18T14:15:00.000-08:00

Blemishes appear in the credit report when a borrower misses a credit card payment; defaults on loan installments or doesn’t pay his bills on time. A sharp eye is kept on these events by the credit rating agencies and they label such a borrower as a bad credit case. This serves as a warning to prospective lenders. Bad credit people, when they look for loans, often find it very hard because the lenders are adversely influenced by their credit history. However, if the borrower has a property or house, which he can offer as collateral for the loan, lenders become more flexible and underwrite their loans. A bad credit home loan becomes the saving grace for people with bad credit.

The most popular use of a bad credit home loan is to consolidate existing debts. In this process many debts with different lenders and nagging installments are clubbed into a single loan with a single monthly installment. A bad credit home loan is also used to buy a new car, to fund an exotic cruise, to pay existing credit card debts or to finance any home improvement plan. A bad credit home loan is very convenient way of securing a large loan, which otherwise would have been very difficult for those with poor credit.

Bad credit home loans due to their inherent risk come with a relatively high interest rate. Depending on how a borrower ranks on the credit scale he can expect typical APR (Annual Percentage Rates) ranging from 9% to 30%. Since, a bad credit home loan uses the house of the borrower as the collateral it is a secured loan. The repayment term for such a loan can vary between 5 to 20 years. A borrower can expect sums between £5000 and £50,000. This amount is limited by the value of collateral offered to the lender and the repayment capacity of the borrower. Taking the credit history into account the lenders feel it safe to give amounts up to 70% of the collateral value. The monthly installments of such loans are quite small and easily manageable, so these loans are very popular with bad credit people.

Since the interest rates, property valuation fees, solicitor’s fees, conveyance and other office charges can increase the costs of the loan tremendously, it would be a wise decision if the borrower shops around and gets the best deal. Heading straight to the first lender who promises a loan might compromise a borrower’s interest in the long run. A bad credit home loan with low interest rates and minimal fees can save a fortune for the borrower.

There are online lenders, specializing in bad credit home loans, which have a good experience in dealing with people with adverse credit ratings. Sensitive to the concerns of those with a poor credit, they often come up with innovative lending options to incorporate their borrowing requirements. Gone are the days when applying for a bad credit home loan was a daunting task involving a heap-load of paperwork. Most of the frontline lenders now have online presence and offer online application facilities. Filling up of these applications takes a very short period in fact just minutes and can be done from practically anywhere- the only requirement is a computer with an internet connection. A toll-free number is also mentioned on the websites of most of the prestigious lenders. It can be used to apply for a bad credit home loan. Many lenders offer an in-principle approval for a bad credit home loan within 24 hours. Best offers from the choicest lenders and a hassle free bad credit home loan awaits a borrower if he/she applies to the right online lender.

Agnes Powel is a financial analyst by profession. The academic qualification of MBA (Finance) from University of Central England matches his credentials. Years of experience in has given the field of lending him an insight into the various intricacies of the loans market. Through his articles, he tries to share this knowledge with the prospective borrowers.To find Mortgage,first time buyer mortgage,but to let mortgage that best suits your needs visit www.easymortgageuk.co.uk

Use Home Equity Loan to Buy Car

2005-11-09T20:32:00.000-08:00

"Dear Dr. Don,
I own a condo and paid cash for it. Its value has tripled. If I need to finance a new car, should I apply for home equity loan or a home equity line of credit? Is the interest expense tax deductible on both types of loans? Thank you for your help."

Click for Answer [Bankrate]

New Options To Tap Home Equity

2005-10-31T14:06:00.000-08:00

In light of rising interest rates a slew of banks are piling on incentives for home equity loans. Along with the increased interest rates banks have seen a rise in loan payoffs. Banks have seen the number of borrowers paying back loans 50% higher than last year.

Another result of rising interest rates is people opting for fixed rate loans which brings more predictability. Borrowers who have elected to keep this option have doubled in comparison to last year.

Finally, with all these new incentives it's important to keep in mind that pricing varies on geography. If you live around Northern Ohio, Denver, and Chicago you should benefit because they are highly competitive.

Home Equity Loan Tip

2005-10-20T15:30:00.000-07:00

Use A Home Equity Loan To Convert Non-Deductible Loans Into Tax-deductible Interest:

If you pay non-deductible interest on a auto loan, credit cards, student loan or personal loan up to $100,000 total, obtaining a Home Equity Line of Credit (known as a HELOC) can convert that non-deductible loan interest into tax-deductible home equity interest when you pay off those loans.

Banks, credit unions and other lenders are eager to make you a home equity loan. For some unexplained reason, the default on home equity loans is virtually zero. Interest on such loans, up to $100,000, is tax-deductible as itemized interest.

However, if the purpose of your home equity loan is to use the funds for home improvements or in your business, there's no limit to the interest deductibility on your business tax returns.

Is Home Equity Loan Interest Tax Deductible?

2005-09-27T13:11:00.000-07:00

"What is the criteria for mortgage interest? My wife and I are in our 70s. We need a home equity loan. But our bookkeeper says we won't qualify to deduct interest on such a loan. Can we deduct interest on a home equity loan?"

In short, yes. Read the details by clicking below.

Is home equity loan interest tax deductible? [Charlotte Observer]

Trading Credit Card Debt for Home-Equity Debt

2005-09-19T16:58:00.000-07:00

"I have about $12,000 in debt and $25,000 in home equity. The number of cards and load are hurting my credit. I learned my lesson regarding debt and now have been fighting to pay these off. Should I go for the home-equity line of credit, or will the interest kill me?"

They should be thinking of a home equity loan which offers substantially lower interest rates. And of course, always remembering the right financial prudence. Read the detailed answer.

Trading credit card debt for home-equity debt [Quad City Times]

Homeowners Cashing Out Equity

2005-09-07T12:58:00.000-07:00

"During the second quarter, 74 percent of mortgage refinancings were 'cash-out' refinancings, the highest level since the fourth quarter of 2000" according to mortgage lender Freddie Mac.

Homeowners were able to take advantage of low interest reates but that's getting increasingly harder to do as interest rates increase. Check out the article below, it discusses when you might be better off using your home equity line of credit as opposed to a home equity loan.

Homeowners opt to 'cash out' equity [AZ Republic]

Flush With Home Equity? Careful How You Spend It

2005-08-23T22:30:00.000-07:00

It turns out that "during the second quarter, 74% of mortgage refinancings were 'cash-out' refinancings, the highest level since the fourth quarter of 2000, mortgage giant Freddie Mac said."

This has been attributed to multiple factors: low long-term rates, rising short-term rates which means less loan competition from credit cards, and from the general rise in real estate prices.

As usual, one should be cautious when deciding if the home eguity loan is right for you. This article explains some important questions you should ask yourself before you go ahead.

Flush with home equity? Careful how you spend it [USA Today]

Tapping Home Equity for College

2005-08-17T14:17:00.000-07:00

The consensus is that home equity can be a good option, yet should be used with caution and only as a last resort. Typically, student loans provide a better deal yet in this day and age of rising college costs, student loans aren't always sufficient. One benefit of the home equity loan is that it might help you receive more financial aid as many private schools take into accound home equity in their financial aid formula.

Tapping home equity for college [MSN Money]

How Can I Use My Home Equity Loans?

2005-08-10T15:08:00.000-07:00

Most people use home equity loans for loan consolidation or home improvements. If used rightly, these options can be substantially beneficial.

Debt consolidation is a popular option if you can prevent yourself from getting into further debt. Home equity loan interest rates are typically multiple percentage points less than credit card interest rates.

Loans for home improvement are another popular option. You can make your home more comfortable and more valuable with equity from the home itself.

Comparison Shopping for a Home Equity Loan Worksheet

2005-08-01T17:39:00.000-07:00

If your currently shopping for a home equity loan be sure to write down all the important details from each lender. All sorts of small fees -- such as appraisal fees, lender fees, and document fees -- can add up and make a difference after everything is finalized.

This Home Equity Loan Worksheet can help sort everything out and find the best deal:
http://communitydispatch.com/artman/publish/article_1477.shtml

Questions and Answers About Home Equity Loans

2005-07-30T21:12:00.000-07:00

More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest rate that is relatively low. Furthermore, under the tax law--depending on your specific situation--you may be allowed to deduct the interest because the debt is secured by your home.
If you are in the market for credit, a home equity plan may be right for you. Or perhaps another form of credit would be better. Before making a decision, you should weigh carefully the costs of a home equity line against the benefits. Shop for the credit terms that best meet your borrowing needs without posing undue financial risk. And remember, failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.

What is a home equity line?

What should you look for?

How will you repay your home equity plan?

Lines of credit vs. traditional second mortgage loans

Disclosures from lenders

What is a home equity line of credit?

A home equity line of credit is a form of revolving credit in which your home serves as collateral. 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.
With a home equity line, you will be approved for a specific amount of credit--your credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the home's appraised value and subtracting from that the balance owed on the existing mortgage. For example,

In determining your actual credit limit, the lender will also consider your ability to repay, by looking at your income, debts, and other financial obligations as well as your credit history.
Many home equity plans set a fixed period during which you can borrow money, such as 10 years. At the end of this "draw period," you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period (the "repayment period"), for example, 10 years.
Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.
There may be limitations on how you use the line. Some plans may require you to borrow a minimum amount each time you draw on the line (for example, $300) and to keep a minimum amount outstanding. Some plans may also require that you take an initial advance when the line is set up.

What should you look for when shopping for a plan?

If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read the credit agreement carefully, and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs of establishing the plan. The APR for a home equity line is based on the interest rate alone and will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.
Interest rate charges and related plan features Home equity lines of credit typically involve variable rather than fixed interest rates. The variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate); the interest rate for borrowing under the home equity line changes, mirroring fluctuations in the value of the index. Most lenders cite the interest rate you will pay as the value of the index at a particular time plus a "margin," such as 2 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and how high it has risen in the past as well as the amount of the margin.
Lenders sometimes offer a temporarily discounted interest rate for home equity lines--a rate that is unusually low and may last for only an introductory period, such as 6 months.
Variable-rate plans secured by a dwelling must, by law, have a ceiling (or cap) on how much your interest rate may increase over the life of the plan. Some variable-rate plans limit how much your payment may increase and how low your interest rate may fall if interest rates drop.
Some lenders allow you to convert from a variable interest rate to a fixed rate during the life of the plan, or to convert all or a portion of your line to a fixed-term installment loan.
Plans generally permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable-rate plans may not allow you to draw additional funds during a period in which the interest rate reaches the cap.
Costs of establishing and maintaining a home equity line Many of the costs of setting up a home equity line of credit are similar to those you pay when you buy a home. For example,
A fee for a property appraisal to estimate the value of your home
An application fee, which may not be refunded if you are turned down for credit
Up-front charges, such as one or more points (one point equals 1 percent of the credit limit)
Closing costs, including fees for attorneys, title search, and mortgage preparation and filing; property and title insurance; and taxes.
In addition, you may be subject to certain fees during the plan period, such as annual membership or maintenance fees and a transaction fee every time you draw on the credit line.
You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those initial charges would substantially increase the cost of the funds borrowed. On the other hand, because the lender's risk is lower than for other forms of credit, as your home serves as collateral, annual percentage rates for home equity lines are generally lower than rates for other types of credit. The interest you save could offset the costs of establishing and maintaining the line. Moreover, some lenders waive some or all of the closing costs.

How will you repay your home equity plan?

Before entering into a plan, consider how you will pay back the money you borrow. Some plans set minimum payments that cover a portion of the principal (the amount you borrow) plus accrued interest. But (unlike with the typical installment loan) the portion that goes toward principal may not be enough to repay the principal by the end of the term. Other plans may allow payment of interest alone during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that amount when the plan ends.
Regardless of the minimum required payment, you may choose to pay more, and many lenders offer a choice of payment options. Many consumers choose to pay down the principal regularly as they do with other loans. For example, if you use your line to buy a boat, you may want to pay it off as you would a typical boat loan.
Whatever your payment arrangements during the life of the plan--whether you pay some, a little, or none of the principal amount of the loan--when the plan ends you may have to pay the entire balance owed, all at once. You must be prepared to make this "balloon payment" by refinancing it with the lender, by obtaining a loan from another lender, or by some other means. If you are unable to make the balloon payment, you could lose your home.
If your plan has a variable interest rate, your monthly payments may change. Assume, for example, that you borrow $10,000 under a plan that calls for interest-only payments. At a 10 percent interest rate, your monthly payments would be $83. If the rate rises over time to 15 percent, your monthly payments will increase to $125. Similarly, if you are making payments that cover interest plus some portion of the principal, your monthly payments may increase, unless your agreement calls for keeping payments the same throughout the plan period.
If you sell your home, you will probably be required to pay off your home equity line in full immediately. If you are likely to sell your home in the near future, consider whether it makes sense to pay the up-front costs of setting up a line of credit. Also keep in mind that renting your home may be prohibited under the terms of your agreement.

Lines of credit vs. traditional second mortgage loans

If you are thinking about a home equity line of credit, you might also want to consider a traditional second mortgage loan. A second mortgage provides you with a fixed amount of money repayable over a fixed period. In most cases the payment schedule calls for equal payments that will pay off the entire loan within the loan period. You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.
In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at both the APR and other charges. Do not, however, simply compare the APRs, because the APRs on the two types of loans are figured differently:
The APR for a traditional second mortgage loan takes into account the interest rate charged plus points and other finance charges.
The APR for a home equity line of credit is based on the periodic interest rate alone. It does not include points or other charges.

Disclosures from lenders

The federal Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term (other than a variable-rate feature) changes before the plan is opened, the lender must return all fees if you decide not to enter into the plan because of the change.
When you open a home equity line, the transaction puts your home at risk. If the home involved is your principal dwelling, the Truth in Lending Act gives you 3 days from the day the account was opened to cancel the credit line. This right allows you to change your mind for any reason. You simply inform the lender in writing within the 3-day period. The lender must then cancel its security interest in your home and return all fees--including any application and appraisal fees--paid to open the account.

Additional information can be found on the Federal Reserve site at http://www.federalreserve.gov/publications.htm