Understanding Home Equity Loans

2007-03-11T12:32:00.000-07:00

Tip! If you are considering getting a home equity loan, you can either get a fixed rate loan or a home equity line of credit. Lenders usually base the rates on their home equity loans on their Prime Interest Rate, the interest rate they charge their most qualified clients or borrowers.

For those homeowners who are in need of consolidating their bills, taking out cash for home improvements, or for paying the pricey tuitions that go along with sending their kids to college, a home equity loan is a viable option to the hassle of refinancing your home. This is especially true for those with an already great rate and good terms on their first mortgage.

Quite simply put, a home equity loan is a lump sum of money that is borrowed by a homeowner and secured by the equity of their residence, just as a first mortgage does. The difference is that the home equity loan (also known as a second mortgage) is in second position on the deed of your property's title, as your first mortgage retains the first spot.

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Home equity loans usually contain tax deductible, fixed or adjustable interest rates and a set monthly payment scheduled for 10, 15, or 20 years, depending on your terms. Cash is allocated to the borrower at the time of the loans closing (or funding) for the necessary disbursement. A set amortization schedule reflects the new loan's repayment plan to its lending institution.

Even though the interest paid on a home equity loan is higher than that of a first mortgage, they are still much less expensive than the average credit card and/or unsecured loan. By consolidating all of these higher interest rate payments into one central loan, borrowers can enjoy a lower monthly payment each month, plus a happier bank account when tax time rolls around.

Reasoning behind the higher interest rates of home equity loans compared to first mortgages ranges to dabble in a bit of everything. First, since this loan is listed as second on a home's lien, the lender will have a more difficult time recouping any losses should the house lose value and fall into foreclosure. Secondly, the length of time usually associated with such a loan is much less than a first, so there is substantially less time to collect the payable interest.

Tip! Another reason to get a home equity loan is for the payment for education. With today's soaring tuition, most homeowners would rather use home equity loans than to pay it with cash.

Another type of home equity loan is called the Home Equity Line of Credit (HELOC), which allows a borrower to draw cash out whenever they wish, for whatever they wish (up to the preset limit). When the money is paid back, the amount of the HELOC is again where it started, ready and waiting to be used again. It's much like a credit card (with significantly lower rates) and the flexibility to only pay interest for the amount taken out of the credit line for a pre-designated period of time. Annual fees may be assessed for this ultimate convenience, as well as higher interest rates than the more traditional home equity loan or second mortgage.

Steve John recommends that you visit http://www.bdnationwidemortgage.com/ for more information on home equity loans.

Home Equity Loans

2007-03-09T08:21:00.000-08:00

Tip! Another reason to get a home equity loan is for the payment for education. With today's soaring tuition, most homeowners would rather use home equity loans than to pay it with cash.

As a homeowner, you may be able to borrow against the equity in your home. The equity is the difference between the property's market value and the outstanding loan balance. These types of loans have become increasingly popular because they can be used for almost anything. Common uses include debt consolidation (paying off high-interest credit card debt), home improvements, purchasing or refinancing a home, and paying for education expenses like college tuition.

The primary advantages of a home equity loan are a lower interest rate and
potential tax deductions. The interest rate you will pay on a home equity loan
is generally lower than the interest rate you will pay on the average credit
card or any other type of non-secured debt. Also, you can generally deduct the
interest you pay. The interest you pay on credit cards and other types of
personal loans is typically not tax-deductible.

Home equity loans usually come in two forms: a second mortgage and a home equity
line of credit. Here are better definitions of the two:

A Second Mortgage, like a first mortgage, is a loan that uses your house as a
guarantee that you will make your payments. The loan is a form of credit for
which your home is pledged as collateral. Generally, home equity loans offer a
fixed interest rate and a fixed monthly payment. A standard home equity loan is
paid off over an extended period of time.

A Home Equity Line of Credit also known as a HELOC, is a type of revolving
credit for which your home is pledged as collateral. The interest rate and
payments are variable. A home equity line of credit works similarly to a credit
card. The payment each month is based upon the outstanding balance owed. As
payments are applied to principal, your available credit increases accordingly.

If you are considering taking out a home equity loan, shop around. The home
equity industry is highly competitive. Look for the best rates and repayment
plans that are available.

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For a recommended source for your next

home equity loan, visit
HomeEquityWise.com.

Fixed Rate Home Equity Loans

Understanding Home Equity Loans

Home Equity Loans