home can be a source of great pride and satisfaction, and if you're looking to finance a renovation, a new vehicle or some unforeseen emergency, it can also be a source of equity. A home equity loan allows you to leverage your property's equity - i.e. the difference between the home's appraised market value and your outstanding mortgage balance - to secure a loan.
Why do people opt for home equity loans? Simply put: the interest is lower. Credit card rates currently hover around 17 percent. A home equity loan or line of credit, on the other hand, can range from the prime business rate set by the Bank of Canada, known simply as "prime" (currently 4.25 percent), to prime-plus-three (which would be 7.25 percent). The rate for a home equity loan is often better than that for a personal line of credit. The rate you get will depend on your credit history, your earnings and whether you have existing assets with a particular lending institution.
Home equity loan vs. home equity line of credit
The difference between a home equity loan and a home equity line of credit is that with a loan, once you've used a percentage of the loan, you won't be able to access it again. For example, if you took out a $5,000 loan to fund a vacation, whether you've repaid a fraction or the entire sum, you have to re-apply to get another loan. With a home equity line of credit, once you've used it, you can spend as much as you've paid back. If you used $8,000 and repaid $5,000, you have access again to $5,000.
Given the reduced interest, many people use a home equity loan to consolidate their debts. They utilize it to settle their other arrears (credit cards and lines of credit) and combine their entire debt load and refinance it at one reasonably low interest rate.
The home equity loan or line of credit must be tied to your principal residence; banks don't normally secure such loans to rental properties. The loan is generally repaid in monthly installments, and must be entirely settled when you move out of the house.
Wednesday, June 4, 2008
How Home Equity Loans Work
Saturday, May 31, 2008
What are the types of home equity loans ?
Home Equity Loans
Equity is the difference between your home's value and the balance on your mortgage loan. If your home is worth $100,000 and you owe $75,000 on the mortgage, then you have $25,000 of equity in your home.
Borrowing against this equity is currently a very popular method of getting a big chunk of credit, primarily because of low interest rates. Add to that the fact that the interest on most home equity loans is tax deductible and they become an appealing option if you need to make a major purchase.
Home equity loans are typically used for consolidating consumer debt or covering a large expense such as a big wedding, college tuition, or home renovations.
However, because your home is collateral for the loan, you should be very careful about using home equity loans. The problem is that if you default on the loan, the bank will foreclose on your home.
Types of Home Equity Loans
There are two types of home equity loans. A traditional home equity loan is also called a second mortgage and is when a bank lends you a lump sum of money that must then be paid back over time. With this type of home equity loan, interest begins building as soon as the bank issues you the money.
A newer type is a home equity line of credit, where a bank gives you a checkbook or credit card to make purchases, which then accrue against your home's equity. With this type of home equity loan, interest does not begin building until you actually make a purchase.
There are also several ways to repay a home equity loan. The most common option is to make regular payments toward both the interest and the principal.
However, some loans also give you the option of only paying the interest at the beginning of the loan and gradually paying more of the principal.
Finally, you may have the choice to pay both principal and interest, but to make extra payments in order to pay off the principal sooner. You should check with your lender about this, as some loans have penalties for paying ahead.
When you take out a home equity loan, the rate is usually higher than a regular (also called a first) mortgage.
However, the rate is generally much lower than the APR for credit cards, and it is repaid over fifteen years instead of four, meaning your payments will be lower than your minimum credit card payments.
For example, $10,000 in credit card debt at 15% will have a monthly payment of $278. The same amount owed at 15% on a home-equity loan over 15 years gives you a monthly payment of only $140.
The problem is that many people get a home equity loan to pay off their credit card debts, but don't change their spending habits and end up running up their credit cards again, compounding the problem.
Lenders call this "reloading" and if you lose a job, have a major illness, or the economy slows, you could lose your home.
Finding a Home Equity Loan
If you decide to apply for a home equity loan, you shouldn't necessarily automatically go with the same bank that holds your first mortgage. Instead, shop around to find the best rates and loan terms. Most home equity loans come with variable interest rates, although some come with low introductory rates, and a few have fixed interest rates.
You may also find loans with large one-time upfront fees, closing costs, or other annual fees.
Finally, there are loans with large balloon payments at the end, and others with no balloons but with higher monthly payments.
Finding the right loan for you is a challenge; it requires checking different lenders and comparing options to select the home equity loan that best meets your needs!
Monday, May 5, 2008
100 % Home Equity Loans
What is a 100% home equity loan?
Its a second mortgage that allows you to borrow up to 100% value of your home. It's generally tax deductible up to 100% of the value of your home. Loan terms can be as long as 30 years due in 15 or simply 15 years amortized.
Qualifications for 100 % home equity loans
FICO based program with minimum of 640 middle score required.
Ownership in the property 6 months to get a new appraised value.
No Bankruptcies and foreclosures in the last 2 years.
Documented income.
Why should I apply for a 100 % Second Loan?
Pay off credit cards,second loans,and other debt.
Lower your payments by hundreds of dollars each month, and make only one easy monthly payment.
Make home improvements, pay college tuition, or just take a vacation.
Tax deductions ( please consult your CPA)
What is the criteria for 100 % LTV Second Mortgage ?
FICO based program with 640 middle fico.
Stated income 680 middle fico score required
Some Cash Out restrictions
Loan amounts up to $200,000.
For A- Credit borrowers
Bankruptcy 2 years discharged.
Appraisal required for amounts above $35,000
Six months seasoning to get new appraised value.
What are Home Equity Loans and Lines of Credit?
If you've never had a home equity loan or a home equity line of credit, it can be confusing. Here are a few home equity basics to help you. Premier Equity home equity loans and lines of credit can only be offered as an additional financing option when you refinance your first mortgage with us — otherwise known as a combination mortgage. If you would like further explanation on any aspect of home equity loans, talk to one of our friendly and knowledgeable Account Executives. They're here to answer your questions.
Home equity loans or lines of credit are also referred to as second mortgages. These second mortgage loans work like traditional home loans and are secured by your home. Home equity loans and lines of credit generally have interest rates lower than most credit cards.
The difference between a home equity loan and a home equity line of credit is that with a home equity loan you get all of the money at once and the loan usually has a fixed interest rate. A line of credit has an initial time frame where you can reuse the money as often as you like, up to your approved credit line amount (the draw period) followed by a period where you pay off the entire balance without the ability to withdraw any additional funds (the repayment period).
Equity refers to the portion of a home's value that the homeowner owns outright. If your home is worth $150,000, and the amount due on your current mortgage is only $50,000, the equity that you have in your home is $100,000. There are low equity loan options available.
Tax benefits - In many instances, the interest on a home equity loan of up to $100,000 can be fully tax-deductible up to 100% of your home's value. Consult your tax advisor.
People frequently choose a home equity loan to consolidate high-rate debt, such as credit cards, or to finance large expenses, like college, remodeling or home repair. The loan provides a lump sum of money at a fixed interest rate with a fixed repayment period and the same monthly payments for the life of the loan.
A home equity line of credit sets a credit limit and allows the homeowner to withdraw and reuse money as needed. This is most often done with a check book. There is often a minimum initial withdrawal requirement. You only pay interest on the amount that you have withdrawn and not yet repaid. A home equity line of credit usually has a variable interest rate, and a fixed period of time where you can borrow and repay as often as you like followed by a specific time period during which you pay off the loan.
As another alternative to a combination mortgage, you can refinance your current first mortgage with a cash-out first mortgage. This is a loan where you can take out cash that is in excess of the amount that you owe on your current first mortgage up to 90% of the home value. The new loan is used to pay off your old mortgage plus you can take out additional cash. This mortgage usually has a lower interest rate than a typical home equity loan.
You may have the option to obtain a lower interest rate by paying discount points. One point represents one percent of the loan amount.
To see if a Premier Equity first mortgage or combination mortgage is right for you, and which products and options are available in your state, complete our short online form. A Premier Equity Account Executive will contact you within one business day to discuss how much you could save in the coming months. There's no obligation.
