A Guide to Home Equity Loans and Lines
of Credit
 What is your home's "equity"? The difference between what
your house is worth, and what you owe on the home, is defined as your available
equity.
 |
Example |
| The fair market value of your home is $195,000, and you owe
$102,000 on your current mortgage. |
| $195,000 value, less $102,000 owed, leaves you with $93,000 in
available
equity. |
A home
equity loan or line of credit (HELOC) is secured by the available equity in
your home.
In some cases, you may be able to borrow up to 125%. However, be careful when
borrowing more than 80%. If house values in your area fall, so will your home
equity and borrowing limit. Your lender may "call" your loan, asking you to pay
back any borrowed funds in excess of the new, lower limit.
You can use the home equity worksheet at the end of this guide to determine
your available equity.
Why Home Equity?
In most
cases, a home equity loan or line of credit carries a lower interest rate than
credit cards and unsecured personal loans.
Additionally, the interest on
a home equity loan or line of credit may be tax deductible, up to $100,000,
depending on your available equity. Consult your tax advisor to determine how
much you could save.
| Typical uses for
a Home Equity are: |
| Debt consolidation |
| Home improvements and landscaping projects |
| New cars purchase |
| Tuition fees |
| Emergency auto repairs, emergency purchases - such as appliance
replacement, furnaces, etc. |
Renovations and home improvements/repairs are an
especially appropriate purpose for a home equity loan or line of credit, because
you are putting money back into your home, thereby possibly increasing its
value.
Consolidating debts that carry a high interest
rate, such as outstanding credit card balances you currently struggle with, is
also a good purpose for a home equity loan or line, as long as you resist the
urge to charge up more debt. A long-term, fixed-rate home equity loan allows you
to pay off all your cards, leaving you with one predictable, lower monthly
payment.
But Why Not Just
Refinance?
To determine if you should refinance
your home and pull additional cash out for expenses, you should look at the
terms and conditions of your first mortgage.
- Is your current
interest rate low? - If the interest rate on your first mortgage is low, and in
line with current market rates,
you probably don't want to refinance in
order to pull cash out.
Unless:
- Have you owned your home for several years? Typically,
interest rates for a 15-year fixed rate mortgage are lower than
that of
a 30-year mortgage. If you have owned your home for many years, you might wish
to look into current rates on
lower-term mortgages. GetSmart has calculators
available to help you determine your savings under various scenarios.
- When considering
your options, keep in mind you'll need to factor in any pre-payment penalties
your current first mortgage
lender might charge.
- Remember,
refinancing generally involves higher closing costs, and if you refinance and
pull cash out to pay off other debts,
you are financing those debts for
the period of your new loan.
A Loan or a Line?
Depending on
the purpose of the loan, you can choose either a home equity loan, or a home
equity line of credit.
A home equity loan is a lump-sum of money you
receive. The loan generally has a fixed interest rate, which is
usually slightly higher than a first-mortgage interest rate. You start making
payments on the loan as soon as you receive it, and once you pay it off, it's
gone.
A home equity line of credit is an amount of money
that is made available to you - similar to the available balance on a credit
card. The line generally has a variable interest rate, with a
pre-agreed ceiling, or "cap". You only access as much as you
need, and make payments only on that amount. You can use the funds, pay them
down, and then use them again. The funds are generally available to you for a
certain term. At the end of that term, if there is anything
outstanding, you can either pay it off or roll it into a loan.
| You should
probably choose a Home Equity Loan if: |
| You know exactly how much money you need. |
| The funds are for a specific purpose. |
| Alternatively, a
home equity line of credit might be the better choice: |
| If you aren't certain how much money you will need - say, for a
large home improvement project. |
| Or, if you know you will pay the balance down in five years or
less - say, for a new car purchase. |
| Or, if you know you will need access to funds periodically over
the course of several years - say, for tuition.
|
There are many different home equity loan and
lines of credit products available, with different terms and conditions, so be
sure to speak with your lender regarding the specifics of their offers.
When you use the equity in your home to secure a
loan or line of credit, be careful. You might wish to think twice before you use
your home's equity to purchase stock or invest in a new business venture, for
example. If the stock value falls, or the business loses money, your home could
be at risk
Remember, since the loan is secured by your home,
the lender may foreclose if you don't repay the money. To be safe, always avoid
borrowing more than you can afford.
A Little About GetSmart's
Services
GetSmart has a Network of over 200 Lenders. We take your
information; submit it into our Network and try to match you with up to 5
Lenders who will compete for your business.
We then send your information to your lender
matches and within 24 hours the Lenders will contact you.
No social security number is required on
GetSmart. And best of all, there is no fee to the borrower, and no
obligation!
| Home
Equity Worksheet |
| 1. Fair Market Value of Home: |
$________________________ |
| 2. Percent you want to borrow: |
________________________% |
| 3. Multiply line one by line 2: |
$________________________ |
| 4. Balance owed on all mortgages: |
$________________________ |
| 5. Subtract line 4 from line 3:. |
$________________________ |
| The amount on line 5 is your available equity, based
on the percentage you wish to borrow. |
There are many different home equity loan and
lines of credit products available, with different terms and conditions, so be
sure to speak with your lender regarding the specifics of their offers.
When you use the equity in your home to secure a
loan or line of credit, be careful. You might wish to think twice before you use
your home's equity to purchase stock or invest in a new business venture, for
example. If the stock value falls, or the business loses money, your home could
be at risk
Remember, since the loan is secured by your home,
the lender may foreclose if you don't repay the money. To be safe, always avoid
borrowing more than you can afford.
Glossary:
Cap
- Consumer safeguards which limit the amount the interest rate on an adjustable
rate mortgage may change per year and/or the life of the loan.
Closing Costs - Includes a loan
origination fee, points, appraisal fee, title search and insurance, survey,
taxes, deed recording fee, credit report charge and other costs assessed at
settlement. The closing costs usually are about 2 percent to 6 percent of the
mortgage amount.
Fair Market Value (FMV) -
Potential sale price for a piece of property if it were sold on the open
market.
Fixed Interest Rate Mortgage - A
mortgage on which the interest rate is set for the term of the loan.
Pre-payment Penalty - Money
charged for an early repayment of debt. Prepayment premiums are allowed in some
form (but not necessarily imposed) in 36 states and the District of Columbia.
Term - The period of time between
the beginning loan date on the legal documents and the date the entire balance
of the loan is due.
Variable Interest Rate - The
interest rate is adjusted periodically based on current market conditions.
You wont believe but this is what people typed into search box to find this page:
Home Lona Hime Loan Hlme Loan
Hpme Loan Hone Loan Hoke Loan
Hoje Loan Home Lian Home Llan
Home Lpan Home Losn Home Lozn
Home Loqn Home Loam Home Loah
Home Loab
|
