Home Equity Loans

Real estate and hosing property build up a reasonable amount of equity. You can get a loan against this equity which is called equity loan. Having a home as a mortgage is the most secure way for lender to give out loan to the borrower as he can be sure of the getting back his money. Moreover the borrower can get flexible terms and conditions and even a lower interests rate for a better equity level home.

Home equity loans help you get the equity tied up to your home. Normally you may wish to sell your house to get the possible equity out of your home but that may not be the conditions if you don’t have alternate way to live, so it’s good decision to let the house go for the loan. You get the required cash in your hand and don’t even have to leave you house. This is an exciting opportunity to people who require quick cash without selling any of their property.

A home equity loan has lot of opportunity attached to it. The very first is your ability to get good amount of cash for a very low interest rate. But with opportunity there comes risk and problems too. Home equity loans are very risky to borrowers because if you fail to repay your loan within allocated period then you will have to let your house go to the lender. The borrowable amount depends on the equity of your home and which also ascertains the repayment period which is normally longer then any other type of loan and you can repay your loan in monthly installments.

The idea of getting a loan on your home can be a good opportunity to repay your other small credits or purchasing a car or renovating your house. You can even pay for your child’s school and college fees with the equity loans. There are multiple ways you can use the equit of your home loan but the most important things while choosing a equity loan is to read the terms and conditions of the lender before you jump in to get the loan. A wrong strategy can really dent your credit rating and loan tenure if you fail to read the terms and will certainly find yourself paying more than your home equity.

The basic idea of equity loan is that you can lend your home against the current equity of your loan, so the more equity you can get of your home will be better to get a bigger loan. But most individual don’t look the other part of getting the equity home loan. If you are not able to pay the equity in time then your home goes into foreclosure and you are bound to let your home go for the amount of equity. Normally, the amount you get from the loan is less than what you get if you sell it so it is very important that you be alert of timely payments and plan your moves from the start.

The biggest shock most people get when they don’t follow the terms of the loans and get their home gone. It is also very important to find about the track record of the company you are applying for the home. Find out if the company is flexible in repayment structure and can accommodate certain latency in repayment. You surely don’t want your home gone just because you took equity loan to buy a new car.

Be ware of all the risk and plan your move. Equity home loan has been a great savior for most individual who have used it properly or else it can be serious problem to your home and credit rating equally.

A home equity loan is a loan that is available to homeowners. In the most basic sense a loan is a sum of money that is borrowed by a person or company and then repaid, with interest (a percentage of the loan amount, usually calculated on an annual basis), over a set period of time. Two principal parties are involved in loan transactions: a borrower (the party borrowing the money) and a lender (the party lending the money).

The two basic types of loans are secured and unsecured. In obtaining a secured loan the borrower presents the lender with some piece of property (for example, an automobile), of which the lender can claim ownership in the event the borrower fails to repay the loan (also known as defaulting on a loan). This property is known as collateral. Unsecured loans, on the other hand, do not require the borrower to have collateral. A home equity loan is a form of secured loan, in that the borrower uses his or her house as collateral to secure the loan. People take out home equity loans for various purposes, such as undertaking home improvements or paying off debt (something-for example, money, a piece of property, or a service-that an individual owes to another individual or an entity).

In almost all cases a home equity loan will represent the second loan a borrower secures using his or her house as collateral. Because houses are very expensive, most homebuyers must first take out a loan to purchase a house. These home loans (commonly known as mortgages) are for large amounts of money and are repaid in monthly installments over a long period of time, typically 30 years. As time passes the value of the home will usually increase (a process known as appreciation), while the total of the mortgage that remains to be paid gradually decreases. The difference between the value of the house and the amount remaining on the mortgage is known as equity. Put another way equity represents the amount of money a homeowner is able to retain after he or she sells the home and pays off the remainder of the mortgage. For example, say a couple purchases a home for $200,000. They pay $20,000 up front (known as a down payment) and then take out a loan for the remaining $180,000. On the day they complete the purchase of the house (also known as the closing), the couple has $20,000 in equity (in other words the original down payment). Two years later their house is valued at $220,000, and the amount remaining on their mortgage is $176,000. In this scenario the couple would have $44,000 in equity on their home. With home equity loans the amount of money a homeowner can borrow depends on the amount of equity he or she has in the house. Traditionally this type of home loan is referred to as a second mortgage.

The two basic types of home equity loans are closed end and open end. A closed-end home equity loan involves a fixed amount of money; the borrower receives the entire amount of the loan (known as a lump sum) upon completing the loan agreement process (or closing). Closed-end home equity loans usually have fixed interest rates (in other words the interest rate remains the same for the life of the loan). Typically the amount of the loan will depend on the amount of equity the borrower has in his or her house; the loan amount might also depend to some degree on the borrower’s credit rating (in other words whether he or she has a proven record of paying off debts in a timely manner). In most cases a borrower is able to borrow up to 100 percent of the equity he or she has in a house. When economists talk about second mortgages they are typically referring to closed-end home equity loans.

With open-end home equity loans, on the other hand, the borrower does not take the lump sum of the loan amount all at once. Instead the borrower receives the loan as credit (that is, as a maximum amount of money he or she can borrow), which the borrower can use as desired. This type of home equity loan is commonly referred to as a home equity line of credit (HELOC). The borrower can take money out of a HELOC at any time and is only required to pay back the amount he or she actually uses. A HELOC is subject to what is known as a draw period, during which the borrower is entitled to borrow money, up to the total amount of the loan, whenever he or she wants. In this way open-end home equity loans give the borrower a greater amount of flexibility. Most open-end home equity loans have variable, or adjustable, interest rates. These rates tend to change over the life of the loan.

Do you know what a 125 home equity loan is? I’m sure you know all about traditional home equity loans where you can borrow money using the equity in your home as collateral for the loan. These secured loans provide many people with cash for a wide range of uses. Of course there are other types of equity loans besides the traditional equity loan, and the 125 home equity loan is one of these options. This type of loan lets you get even more cash than usual based on the available equity in your home.

Let me first define what equity is. Your home’s equity is quite simply the difference in what you owe the bank still and the value of your home. For example, if your home is valued at $300,000 and you still owe $150,000 to the mortgage company then you have $150,000 in equity. One nice benefit is that in a rising real estate market you gain additional equity simply through the rise in your homes value.

Traditional Home Equity Loans vs. 125 Home Equity Loans
In a traditional home equity loan you are offered a loan that does not exceed the amount of equity present in your home. So, if you have $25,000 in equity you’re able to get a loan for $25,000. This loan can be used to pay for anything you want from home improvements to education or even a vacation if you choose.

The difference between the traditional secured loan and a 125 home loan is in the amount you can borrow. With a 125 loan you can borrow up to 125% of the present value in your home. In this case if you have $25,000 in your home you would be offered a loan of $31,250. In the past many lenders would shy away from this type of loan since part of it is unsecured and increases their risk. These days however more and more lenders, especially online lenders are offering this kind of partially unsecured loan. If you’re thinking of applying for this type of loan you should know that a high credit score will help you greatly in getting approved.

125 Home Equity Loan Warning
The 125 secured loan is especially suited for those who need access to a large amount of money. If you are thinking of using the money to start a business or take on a large home improvement project a 125 loan could meet your needs quite well.

Keep in mind that as long as home values continue to rise or at least stay stagnant you’re in little danger from this type of loan. However, if your home value declines your equity will decline as well and you could actually end up owing more than your home is worth.

It really depends on your needs and circumstances to determine how much sense a 125 home equity loan makes for you. As I said previously, it can be very useful for those starting a business, particularly if you expect the business to have good cash flow. It is also useful for large home improvements since they are likely to increase your home’s value and also your equity. Just be careful that you don’t overextend yourself when taking any type of home equity loan.

In an economy where housing prices are increasing and employment rates are stationary, the use of an equity loan is often the choice of homeowners who need extra funds. Such loans are sometimes known as second mortgages or even third mortgages and, if you have enough equity in your home, are relatively easy to get. Before choosing a lender, the homeowner considering such a loan should submit an application to several lenders and then do a home equity loan comparison to find the best deal. Today, with a struggling economy, this type of loan may be difficult to get, and the choices of terms may be limited.

What Does the Term “Equity” mean?

Home equity can be defined as the cash-in-pocket worth of the home. To calculate this amount, the estimated market price of the home less the amount of money still owed on the home is considered the equity. At the time of purchase, the equity technically is zero. If you make a down payment, that amount reduces the principal and gives you some ownership in the home. When you make your mortgage payment each month, a tiny portion of the payment is applied against the principal. As the amount owed decreases, the equity is increased by a like amount

As market prices of homes in the neighborhood increase, the value of your home is assumed to have increased as well. This is the second way in which home market values can be improved. If you were to sell the home at the improved price and pay off the existing mortgage, you would receive the difference, that is the equity, in the form of cash..

Your home’s equity will be increased if the value of your home improves because you have carried out home improvement projects to the building. Adding a room, upgrading the kitchen or bathroom or adding significant energy saving features typically increases the market value, and thus the assumed equity.

Home equity loan Proceeds Usage

An equity loan on your home makes sense for the borrower when there is need of significant cash at a low interest rate. Because the proceeds of the loan are secured by the home’s value, it typically costs much less than credit card debt. Sometimes the homeowner will pay off credit cards and other loans with a high interest rate by taking out a home loan.

Another common use for the proceeds of a second mortgage is the cost of college for you or for family members. An equity loan may be needed for catastrophic medical expenses not covered by insurance plans. Home owners sometimes obtain home equity loan funds in order to pay for major improvements or repairs on the home, especially those that increase its value.

What Borrowers and Lenders Look For in a Loan

Lenders want to know that you can repay the money that you borrow on your home’s equity. The amount of the loan, the length of the repayment period, your credit score and the interest rate all affect the amount of monthly repayment on the loan. The lender usually looks at the current market value and the amount of equity you have accrued before setting the amount they are prepared to make available in the form of a loan.

We’ve all been there: life deals you a bad hand, and unexpectedly you need money you don’t have. At times like this, it’s important to remember the best asset you have: your home. You might consider refinancing as a way to help you through the tough times.

One option you have is a home equity loan. Home equity lines provide homeowners with quick access to extra cash in times of need.

What is a Home Equity Loan?

A home equity line of credit allows you to borrow against the value of your house. The cap on the loan is usually determined by estimating a percentage of the value of your house – 75% or 85% of the house’s value, if your credit is good – and subtracting what you still owe on the first mortgage. Home equity lines usually allow you to draw from the account using special checks or credit cards. The terms of the specific loan will determine the length of the loan, the length of the “draw period” (the period of time during which you can withdraw money on the loan), the interest rates, the minimum and maximum amount that you can withdraw at any one time, and the method and payments with which the loan will be repaid.

For instance, some home equity loans may credit payments only against the interest due on the loan, leaving the borrowed amount to be paid in full at the end of the loan period. Other loans may simply have a larger-than-usual payment, called a balloon payment, as the last payment. However, it may be helpful to note that the interest you pay is usually tax-deductible, meaning that you will get it back on your tax returns; if managed correctly, this “bonus” money can balance the impact of a large final payment on the loan.

In contrast, taking out a second mortgage on your house will give you the borrowed money all at once. Mortgages usually have fixed interest rates, which might be set slightly higher than the introductory rates on a home equity loan. On the bright side, though, the rates and payments on a second mortgage won’t change, whereas the variable interest rates of a home equity loan may mean a payment that increases steadily over the years.

Shopping for a Home Equity Loan

Shopping for a home equity line of credit is like shopping for almost anything else: lots of different lenders provide lots of different choices. In order to make the choice that will best serve your needs, you should be prepared to obtain and compare quotes from many different lenders.

Most home equity loans have variable interest rates, which are determined by an index. When comparing home equity loans, you should know the index that each loan uses to determine your interest rate. Variable interest rates also have a couple of caps that are important for you to know, as they limit how far and how fast the interest rate can rise. The periodic cap limits how much the rate can change at one point in time, and the lifetime cap limits how much the rate can change over the life of the loan. It’s also important to know whether the rate you’ve been quoted is a discounted introductory rate; if so, make sure you know how long the introductory period is, and what the rate will go up to when it’s over.

If you are comparing a home equity line of credit to a second mortgage, understand the differences between them. Primarily, when comparing the costs of both, realize that the APR quoted to you on the second mortgage will be the only cost of the loan, whereas home equity loans also have account fees and other charges that are not built into the APR.

Costs to Consider

“For a true comparison of credit costs, compare other charges, such as points and closing costs, which will add to the cost of your home equity loan,” the Federal Trade Commission (FTC) advises in their document, “Home Equity Credit Lines.” The Truth in Lending Act requires lenders to be open about the terms and costs of a loan, but you may need to ask for this information up front if you are comparison-shopping before committing to any one lender.

o Application fee – In order to qualify for credit, you will have to submit an application to the lender. This application will allow the lender to check your credit score and your debt-to-income ratio, two important factors in determining your credit worthiness. Be aware that your application fee probably won’t be returned to you if you fail to qualify for the loan.

o Appraisal fee – The lender will want to first appraise your house in order to determine the value of the property. From that appraised value, they will determine your line of credit. Appraisal fees can be considerable, and should be compared between lenders as one of the costs of the loan.

o Up-front charges – The lender may assess charges for setting up your account. These charges may vary considerably between lenders, so it’s wise to compare these charges when deciding between multiple home equity loans.

o Closing costs – Just like when you bought your house, you may have to pay closing costs when you get a home equity loan. “These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line,” the FTC states. Different lenders feature different closing costs, so any comparison of home equity loans should take these costs into consideration.

o Interest rates – Interest rates determine how much interest you will have to pay over the life of the loan. In order to compare multiple loans, you’ll need to be able to see the “full picture” of what the loan will cost you, which includes the interest rates as well as the other fees and charges the loan will accrue.

o Account fees – Home equity lines often have continuing fees associated with the account, such as transaction fees, maintenance fees, or an annual membership fee. These fees will also vary between lenders, and should be compared as one of the costs of the loan.

Keep in mind that a home equity loan with low interest rates may make up the difference in other costs. For that reason, when shopping for the best deal it’s a good idea to assess all costs associated with each loan.

Using Your Home Equity Line of Credit Wisely

“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.” This statement, made by the Federal Reserve Board in their document, “When Your Home is on the Line: What You Should Know About Home Equity Lines of Credit,” reminds us that home equity loans should not be taken lightly. After all, if something goes wrong and you cannot repay the loan according to your terms, you risk losing your most important possession of all: your home.

The FTC notes, “Because home equity loans give you relatively easy access to cash, you might find you borrow money more freely.” The temptation to spend freely will be there, so it will be up to you to remind yourself that you risk losing your home if you let your spending get out of control. Borrow only what you need, and what you know that you can repay according to the terms of your loan. The equity on your home can provide relief in times of difficulty, but if you abuse that privilege, you risk losing the most valuable asset you have