Home Equity Loans:
A home equity loan allows you
to borrow money using your homes equity as collateral. Collateral
is property that you pledge as a guarantee that you will repay
a debt. But, if you fail to do so then the lender can take your
collateral and sell it to get the money back, in this way you
lose your home and have to move out of the house if you dont
repay the debt. Equity on the other hand is the difference between
the price of your home and how much you owe on the mortgage.
For example: if the house purchase price is $200,000 and the amount borrowed is $180,000 then your equity or down payment is $20,000. After five years the amount borrowed remains the same i.e, $180,000 but the principal paid will be $13,000 amount owed is $167,000; the houses appraised value is $300,000 and equity is $133,000.
This is like a second mortgage, it lets you turn equity into cash and thus you can spend it on home improvements, debt consolidations, college education and other expenses. The only difference between equity loans and mortgages is the time taken to repay back where a mortgage is set up to be repaid back in 30 years an equity loan is to be repaid in a considerably shorter period i.e, 15 years it could be as short as five years and as long as 30 years. It is a lump sum that has to be paid off over a set amount of time with a fixed interest rate and fixed payments each month once money is borrowed you cannot borrow further from the loan. With so many different loan products around, and with people taking loans every year, it is very important to find something that offers the lowest rate of interest and the most affordable repayments when selecting a loan product. With a home equity loan the amount you can borrow is also determined by the amount of equity you have in your property. However, the amount varies from 75% to 100% and even 125% according to the lenders, because different lenders have different policies
There are several means of getting this loan a thrift, a mortgage banker,
or a mortgage broker. Do you even know the difference between
the three, which would be better for you or are you confused
and dont know which to choose. Dont worry we will help you,
• Thrifts are mutual savings bank and savings and loan association,
its a typical bank from where may be even your parents might
have taken loans.
• Mortgage bankers only lend money.
• Mortgage brokers are not bankers they only act as middle men, they
dont have their own money to lend they work with a number of
lenders to find a loan to match your needs. By law they work
Home Equity Line Of Credit :
Since borrowing money has become a business these days with people taking loans for all sorts of reasons, and even those who do not have a property of their own, find it very difficult and expensive, because of the high interest rates. The home equity line of credit is an excellent choice for those who own their own homes and have some equity in their property. This is because you get low interest rates, longer repayment terms, more affordable monthly repayments. This scheme allows you to borrow the money based on the amount of equity that you have in your property (i.e. the balance value of your property after deducting any outstanding mortgage and loans secured). You will get a credit limit, which is the maximum you can borrow at one time and you will get a period over which the line of credit will run before you need to renew the line of credit.
• Provide verification of income i.e, a pay stub and the previous two
years tax returns.
• Verify your bank account numbers and details of your long-term debt.
• If you are self employed you will need to provide financial statements
for your business.
When to Look Into Home Equity Loans :
Since there are so many different loan products available these days, it is really very hard to decide which one might be the best. Although the home equity loans are the cheapest and most sensible option for homeowners, it is also important to know when to look into it. For example, if you need to borrow a small amount for a short period, then it is better for you to use a credit card, rather than home equity loan, which is a lengthy process. But, if you want to borrow a substantial amount for a longer period of time, then you can go for home equity loans. Depending on the amount of equity you have in your property, you can borrow a large amount and enjoy lower monthly payments.
Benefits to Home Equity Loans
Some of the benefits to home equity loans are :
1. The rate of interest is very low because they are secured loans, which means less risk to the lender.
2. You can borrow money for a longer term, which means longer repayment period and lower monthly repayments.
3. You can borrow over and above the level of equity in your home.
4. It is easier to get the loan because of the secured nature, (especially for those who have a tarnished credit rating and finds it difficult to get loans based on their financial past).
5. It enables you to unlock the cash tied up in your property without having to sell the property (i.e. You can get the capital when you need it rather than wait till you sell your property).
Interest Only Home Equity Loans :
In this loan you have the option of paying only the interest on the loan for the first number of years. The lenders agree to this type of loan because they make money off the loan as they get interest every month. On the other hand, since you have to pay only the interest, you can take your time and do the renovations to increase the value of your home and then sell it.
home equity loan vs. a Home Equity Line Of Credit
While both the loans allow you to borrow, there are differences between them that you have to look, before you make your decision :
- A home equity loan carries low interest and regular monthly payments. You can even borrow 125% of the equity amount, depending on your credit record and the lender you choose. You can also choose between a fixed rate of interest or a variable rate and a term in which you repay the loan. Once you pay off the loan, you cannot apply for a second loan.
- A home equity line of credit gives you access to a source of funding. You
can use and reuse as you please. The lender approves an amount.
You can use the money partly or fully. You pay every month a
percentage of the outstanding balance and the interest on the
amount. With this line of credit, you can use the money, repay
it and then use it again.
One can avail Home equity loan
against a residential property. They can be arranged and availed
easily and rep...
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