Home Equity Loan Lowdown

Uses of Home Equity Financing

We can take benefits from the low interest rates and potential tax advantages of Home Equity Loan. The three most popular uses of Home Equity Financing are home improvements, consolidating bills and making big purchases. Many homeowners take Home Equity Loans for the renovation of their homes. They spend a substantiate amount of money on the repairs and upgrades of their homes.

We can also consolidate all our high-interest bills into a single using home equity. Rather than paying high interest rates on outstanding balances, it is advisable to opt for the lower-rate Home Equity Loan. People, who want to make big purchases such as cars or want to invest the money in some ventures, can take the advantage of Home Equity. They can also use the Home Equity Loan to make educational or medical expenses. wellsfargo.com reports:

You can also use your home equity to combine all of your high-interest bills into a single, more manageable monthly payment. You can increase your cash flow by lowering your monthly payment and — since it’s easier to keep track of just one bill — more effectively manage your finances.

Read More: Top Three Uses of Home Equity Financing

Bank of America Announces Hurricane Wilma Relief

After Hurricane Katrina and Hurricane Rita, Hurricane Wilma has caused widespread damage in America. Bank of America announced that it has instituted its disaster relief programs to assist customers affected by Hurricane Wilmain Collier, Lee and Monroe counties. Under the program, qualified Bank of America customers affected by Hurricane Wilma in those counties can access a special Bank of America home equity loan program and incur no fees. They can also increase the credit limit on an existing home equity line of credit. They will get the benefit of preferential pricing below the current rate.

The new relief program allows them to avoid bank withdrawal penalties on time deposits and existing Bank of America Individual Retirement Accounts (IRAs). They can also receive emergency credit line increases on their existing Bank of America Visa(R) card and MasterCard(R). For assistance with existing consumer, home or small business loans, credit cards or for more information about the special home equity loan program, conusmers can call on 1-800-831-5586. prnewswire.com reports:

The loans are subject to credit approval and normal credit standards apply. These offers cannot be used in combination with other offers, and certain restrictions may apply.

Home Equity Loan to buy a Car

People who have their own home, can avail the opportunity of home equity loan. Home equity loan has the lowest interest rates and attracts a number of people. By taking home equity loan, a person can buy a car.

A home equity loan is at a fixed interest rate and for a fixed loan term. It has a self-amortizing loan payment. That means the monthly payment covers both the interest expense and the paying down of the principal balance. It's the classic choice for borrowing against your home's equity for a specific purpose, in your case financing a car. In contrast, the home equity line of credit, or HELOC, is a variable-rate loan that typically has interest-only payments, at least in the early years of the loan. bankrate.com reports:

The interest rate is generally priced at a spread to the prime interest rate, which is currently 6.75 percent. You can track the prime interest rate on Bankrate using Rate Watch.

Banks offer Best Home Equity Plans

Due to the increasing interest rates, the growth of home equity borrowing has witnessed a sharp fall in the recent years. Keeping this in mind, lenders are unveiling plans that will help the borrowers to the get the best out of it. U.S. Bank, a unit of U.S. Bancorp introduced a home-equity loan with a rate of 5.99 percent that is fixed for 20 years. J. P. Morgan Chase & Co. reduced the interest rate by half a percentage point for the borrowers on its home-equity lines of credit. The new low interest rate home equity loans are available to the borrowers in five states: New Jersey, Illinois, Connecticut, Michigan and Ohio.

Other banks are also not lagging behind. They roll out plans to offer home equity loans to their customers at a competitive price. Wachovia Corp.'s "win back" program is offering a rate of prime minus 1 percent to certain borrowers who previously paid off their home-equity loans. azcentral.com reports:

Home-equity lending has boomed in recent years as record numbers of Americans have taken advantage of low rates and rising home values to fund their spending needs or pay off high-cost debt. Borrowing against home values added $600 billion to consumers' spending power last year, according to Federal Reserve calculations, with about one-third of that sum coming from home-equity loans and lines of credit.

Need to be Careful about the Home Equity Loan

Home is the greatest asset for any individual and nobody will want to lose it under any circumstances. A loan based on equity is just like putting your valuable asset at risk. Therefore, we should be very careful about our rights and the procedures before taking a Home Equity Loan. Although Home Equity Loan is always considered beneficial for the individuals to mange their expenses and debts, there are some lenders who may exploit the borrowers.

Individuals should read all the terms and conditions before taking a Home Equity Loan. If we do not have adequate income to pay the monthly instalments, we should not overestimate our income and take a Home Equity Loan based on that. We have to keep it in mind that if we fail to make the monthly payments, the lender may put us in trouble. All the groundwork needs to be made before applying for a Home Equity Loan. ftc.gov reports:

Abusive lending practices range from equity stripping and loan flipping to hiding loan terms and packing a loan with extra charges. The Federal Trade Commission urges you to be aware of these loan practices to avoid losing your home.

Read More: Home Equity Loans: Borrowers Beware!

Home Equity Loans are less than Credit Card Loans

Home Equity loans always cost less than the credit card loans. Individuals, who have their own homes and facing financial problems due to credit card payments, can take home equity loan to repay the existing debts. As home equity loans charge lower interest rates, more people are taking the benefits of this loan. Home Equity is basically a second mortgage on your home. To take loans, you will be required to present your home as a collateral.

In such a case, the lenders can seize and sell your home if you do not make the payments in future. Because equity loans are secured by a property, the lender takes less risk than with unsecured loans such as credit cards. Home Equity loans have low interest rates something between 6 to 7.5 percent. sunherald.com reports:

With a line of credit, you are authorized a maximum amount to borrow, and you can take any amount up to that limit any time you want. HELOCs typically provide borrowers with checkbooks and debit cards. Your monthly statement will show the current debt and minimum payment required, just as a credit-card statement would.

Major Banks eye $300b in Home Equity

Major banks are all set to make a bid to grab $300 billion locked up in home equity. Under the pressure from their competitors, banks are now trying to undo the damage by lowering term-loans. Bank of Queensland lowered its one, two, four and five-year term loans. It lowered its three-year term loan a few weeks ago. Many other banks followed its suit.

It is reported that European giant HBOS is going to enter into the mortgage market. HBOS owns BankWest and wants to grab the deposit market in Ireland. A leading bank ABN Amro already acknowledged that HBOS could be threat to its rivals in this sector. Although the reverse mortgage sector is now a key target for many of the banks, only St George and the CBA have made any attempt to cater for the growing demand. thecouriermail.news.com reports:

Non-banks like Bluestone and Mariner have also started issuing reverse mortgages. ABN Amro estimated home equity in the over-60s exceeded $300 billion and was expected to rise to $700 billion within 10 years.

Read More: Banks eye $300b in home equity