Home Equity Loan Lowdown

Tips To Repay Your Home Equity Loan

Taking a home equity loan is all very fine. You can do a lot of things with that loan like renovate your home, make additions to your kitchen, bathroom or bedrooms, pay off other loans, use it to pay for your child’s student loans. Whatever the reason, a home equity loan offers you the benefit of a loan at a much lower rate than any other kind of loan. However, before entering into a plan, you must consider how you will pay back the money you borrow. I know, it is easy for us to forget that the money needs to be reapid some time. But isn’t it better to finish it off when you can.

There are a few plans that set minimum payments. This covers a portion of the principal (the amount you borrow) plus accrued interest. The only problem here is that in such a loan, the portion that goes toward principal may not be enough to repay the principal by the end of the term. Then there are other plans that allow payment of interest alone during the life of the plan. This means that you pay nothing toward the principal. So, once your loan period is over, you will owe the amount of the principal. You could also choose to pay more, or you could pay down the principal regularly.

Whatever your mode of payment, it helps to remember that at the end of your loan period, you have to pay the entire balance owed, all at once. In case you are unable to make this huge, one-time payment, you could refinance it by obtaining a loan from another lender, or by some other means. If you are unable to make this final total payment, you could lose your home.

Home Equity Loan Delinquencies Marginally Down

Good news on the home equity loan front. You know, when you’ve been hearing so much bad news for so long, some good news comes as a breath of fresh air. By bad news I mean all those debt problems, mortgage problems, rise in student loan rates, high insurance rates, high gas prices… just about everything had this feel of rising prices, costs with no income to support these costs.

Well, so the fact that delinquencies are down, calls for some celebration. According to the American Bankers Association’s Consumer Credit Delinquency Bulletin, home equity loan delinquencies fell to 1.89 percent from 1.94 percent in the second quarter. The survey also shows a slight increase overall in the percentage of consumer loans that are 30 days or more past due during the second quarter of 2006. Dsnews.com reports:

Property improvement loans and mobile home loans were among those loan types that had an increase in delinquencies. Property improvement delinquencies increased to 1.48 percent from 1.42 percent, while mobile home loan delinquencies rose to 3.61 percent from 3.37 percent.

Read more: ABA: Second Quarter Home Equity Loan Delinquencies Down

I Want That Kitchen… Puhleeez

If you come to my home any time in the near future and don’t find it smart enough, blame the rising mortgage rates in the country! I’ve been wanting to do up my home for quite some time now, but would those rates just stop ticking? No Sirreee! And so here I am waiting for the day when my modern kitchen and designer bathroom don’t haunt my dreams but become realities.

And if housing-industry analysts are to be believed, things are only going to get worse. I think we should shoot all these doomsayers and interest rate setters. That way, we can do what we want. But until such a day, I’ll have to let the kitchen and bathroom haunt me.

Avoid That Loan, Use Other Options

Almost every expert worth his name is now busy advising people on how it is the worst time to take money from your home as average sale prices are falling, interest rates are rising, and foreclosures are way out-of-control. But what do you do if you are deep in debt and want to pay off those loans before your situation gets worse? Fool.com reports:

That's why Bills.com co-CEO Andrew Housser says that it's best to exhaust other sources of financing for debt consolidation before tapping into home equity. "Using your house to pay off unsecured debt can be very risky. If you choose this route, make sure you leave yourself some financial breathing room, so that if something unexpected does happen, you will not risk losing your home."

Read more: Defying the Bubble Babble

Know The Rules On Home Equity Loans & Property Exchange

Want to use our home equity to purchase an investment property and plan to do an Internal Revenue Code 1031 tax-deferred exchange? There are quite a few things you need to know about a 1031 exchange before you decide to make the exchange. Mortgage101.com reports:

Most tax advisers suggest renting your former home at least six to 12 months (to show rental intent) before making an IRC 1031 tax-deferred exchange.

Read more: Homeowners eye real estate exchange, hit legal hurdle

Home Loan Tips For First Timers

So, you are out to take your very first home-equity loan. You probably want to make renovations or additions to your house. Or probably you want to use the money to invest somewhere. Whatever the reason for taking the loan, once you’ve decided on your course of action; it is but natural to be excited. You can barely control your excitement and just want to get the loan and finish off with that process. According to experts, this is the stage where most people make mistakes – big mistakes that could cost them their home. So, it is best to go slow at this stage.

Taking a loan is not a simple procedure and the only thing that will stand you in good stead is your knowledge of the market and how it operates. So, take your time and learn about the market. Ask around and if necessary go online to know more. The two basic rules of getting yourself the best home loan possible: Educate yourself and shop around. You could find out the best rates available in your area or you could go online to get a better idea of the rates available. It could be one of the biggest financial decisions of your life and you would benefit if you get into it with your eyes wide open.

Watch out for those special deals. Follow this rule: if it seems too good to be true, then it probably is. This rule will help you avoid the traps laid by predatory lenders. Another thing you could do to increase your knowledge is enroll into a Community Homebuyer Investment Program. This program teaches you everything from budgeting, and home care, to loan processing rules.

You Can Convert Your Equity Line To Fixed Rate

Have a floating-rate home equity credit line? It has probably risen to uncomfortably high monthly payment levels as a result of the Federal Reserve's interest rate increases over the past two years. You probably have the choice of sticking with your credit line and risking further jumps in payment or, you could refinance your first mortgage and pay off your credit line. But there is a better solution to this problem. Baltimoresun.com reports:

Most major players in the home equity arena will now allow credit-line customers to escape the Fed's rate increases and freeze their rate on a portion - or all - of their outstanding balances. Some banks will even turn your floating-rate credit line into a smorgasbord of tax-deductible financial planning choices, fixed-rate and variable-rate.

Read more: Banks ease converting equity line to fixed rate

Here’s A Tale To Warn You Of Shady Lenders

Maria Rivera took a home equity loan of $10,000 to pay for home improvement costs. She was lured into taking the loan by ads that promised affordable loans for home improvement projects. Now, seven years after a contractor tore up her house without making the promised repairs, Maria is paying $122 every month for her home-equity loan and still has three years of payment left. And instead of a new bathroom, she was left with ruined carpets and a damaged support beam.

There are many such shady lenders spread across the country. They defraud customers out of hundreds of thousand of dollars by promising them easy, low-cost loans. Firstly, don’t ever take a loan against your home’s equity unless you really need it. And secondly, always take a loan from a reputable organization that has more than a few years of business behind it.

High Credit Card Debts? Don’t Worry, Pay It Off With A Home Equity Loan

High interest credit card debt troubling you no end? Why don’t you just take a loan against your home’s equity and pay off that damn debt and be free again? Why don’t you!! If you’ve seen even one such article on the Internet (apart from my introduction of course) just check who’s done the writing. My bet’s that almost all of them were written by mortgage brokers.

If you read that and heeded that advice, I can only offer you my deepest sympathies. First of all if you’ve been maxing your credit cards, you have a problem bro, and that needs to be sorted out. And you cannot sort it out by losing the roof over your head. Yes, that’s exactly what you will be doing if you take out a home equity loan. Bestsyndication.com reports:

For most people, this is their single biggest investment and financial asset. So, this loan to pay off unsecured debt is secured by the roof over their heads, which costs more each month when a loan is taken out against it.

Read more: Home Equity Loan to Pay Credit Card Debt, Bad Idea!

Lenders Don't Part With Their Money Easily

Home equity loans are still an attractive proposition because of their low interest rates. But there is one thing you need to know about this market -- lenders are very cautious about the amount they lend. Their priority is value of collateral and prompt recovery of the loan. Market-day.net reports:

Creditors prefer granting amounts less than or equal to the market value of your collateral. A borrower with exceptional credit history can expect amounts up to 125% of the collateral, while someone with a turbulent standing may get about 60% of it. There is more scope to borrow larger amounts as long as you satisfy the lender of your ability to repay the loan.

Read more: Homeowner Loans : A 3D View of Ownership!

Is A Home Equity Loan Better Than Second Mortgage?

Most people who own a home first think of cashing in on their home’s equity when in need of funds. There are two ways you can cash in on your home – you could consider a second mortgage or a home equity loan. The problem arises when you cannot decide which of these types of financing will be beneficial to you. It actually boils down to your exact needs and your repayment capacity.

If you have a one time big expense to cover, you are probably better off with a second mortgage. However if you have recurring expenses, then you might not want a second mortgage because a home equity loan will work out better for you. The second mortgage is best for large amounts of money at once while recurring expenses like tuition are better paid for with a home equity line of credit. Bestsyndication.com reports:

You will also need to consider your ability to repay and which option will suit you best. A second mortgage can be financed similarly to your first mortgage, while the home equity loan can be paid back more like a credit card.

Read more: Second Mortgage Vs. A Home Equity Loan

Missed A Home Payment? Here’s What You Can Do

I know you’ve heard the warning that it is not good to ignore payments on home equity loans and that your home is a collateral, blah, blah… Well, we all know this fact, but there is another pressing fact – lack of funds or funds not being sufficient enough to stretch through the month. In such and other circumstances, you may be forced to miss a home payment.

What should you do when you miss a payment?

1. The first thing to do is NEVER try to ignore it – one missed payment is the first step of a downward spiral that could end up with you losing your home.
2. Next, immediately call your lender and inform them, and explain the reasons for missing the payment.
3. Thirdly, try to come to some arrangement with the lender: you could make the payment the following month or in installments if it is a large sum.
4. If you think you still cannot handle the payments, you need to sit down with your lender and discuss other options like for instance a new payment plan with a lower sum.

Try Not To Get Carried Away By That Loan

Despite rates rising for home equity loans and HELOC, they are still more lucrative than credit card borrowing which as a rule has higher interest rates. That said, it is a good thing to remember that you can easily get carried away with your spending when using a home-equity loan, so it is good to be careful. Orlandosentinel.com reports:

It's not free money. When you use your home-equity line to pay off your credit card bills, you're betting the house that you'll keep up on the payments. You also could take 10 to 30 years to pay off last year's holiday spending. Use your loan responsibly, and if you use it to pay down old debts, don't use it as an excuse to run up new ones.

Read more:Questions, answers reveal financing dilemmas today

Borrow Smart

Feel the need to take a home equity loan? Well, by all means you can go ahead and take that loan, only don’t be in too much of a hurry. That will only induce mistakes. And mistakes are one thing you just cannot afford, what with the interest rates going through the roof. What you need to do is not just borrow but borrow smart. Here are a few tricks you can employ to ensure that you get a good deal:

• Compare: This is something I insist on. Whether it is a loan or an insurance policy, always compare rates. It is a free market and you should be able to take advantage of the competitive streak among lenders. In the case of a home equity loan, the rate you get will depend a lot on your credit score. So if you have a really good credit score – 760 and above – you can easily get a home-equity line of credit for half a point below the prime rate. However, if your credit is not too good, you may have to pay nearly 5 points or more over prime.
• Know the rules: You must have heard from many sources that home equity loans are better than most other loans because you can deduct the interest. Not True—well not always. Another thing is that even if you do get a deduction, your tax break will be limited to interest on loan amounts of $100,000 or less. So if you’ve borrowed more than this stipulated amount, the interest you pay on the excess amount will no be deducted.
• Reflect: It is important to realize that when you take a loan against your home’s equity, you are risking your biggest investment. So borrow only if you absolutely must because when you are ready to sell off your home, you may not get as much as expected.
• Avoid: Using a home equity loan to pay off your credit card debts. Here, you will only be addressing an immediate problem and not its root cause. And you could end up being deeper in debt.

Tips To Tap Into Your Home's Equity

A home equity loan is a good idea when you know what you want to do with that money. However, it is important to know how to borrow the money so you can get the best deal possible. Msn.com reports:

If you have an excellent score of 760 or above, you should be able to win a home-equity line of credit for half a point below the prime rate, said Chris Larsen, CEO of E-Loan. A good score of 700 to 759 should win you a rate equal to prime. (To see current rates on lines of credit and loans by credit score, visit the Loan Savings Calculator at MyFico.com.) People with mediocre to poor credit can pay 1 to 5 points over prime, or more.

Read more: 5 tips for wisely tapping your home equity

Home Equity Loans: Wise Decision?

The past few years have seen numerous Americans establishing lines of credit secured by the equity in their homes or have borrowed a lum sum amount secured by their home. For marginal borrowers this can turn out to be highly risky as it exposes these families to the loss of their homes. Bestsyndication.com reports:

Prior to mortgaging or refinancing a home you should consider what your families finances would look like if one or more of your family members living in the home lost their job or came down with a serious illness.

Read more: The Use of Home Equity Loans - Wise or Not Wise?

You May Not Need That Loan

Have you heard about the parents who wanted to give their son the best grad gift ever? They financed the new SUV, which their son fancied. And guess where the money came from? The loving parents took a loan against the equity of their home!

I didn’t believe it and still don’t. I mean I can understand a parent loving his/her child but going to such an extent just shows how short sighted the parents really are. It’s one thing to love your children and shower them with gifts. But there are limits to everything. And here, they crossed the limit when they took the loan for this vehicle.

I know this sounds a bit preachy but do you really believe that the roof over your heads is irremovable. Imagine the plight of these parents if they are unable to repay the loan. They’ve lost their home and for what? A vehicle?

There has been an increasing trend among people to cash in on their home’s equity for the simplest of reasons. I know of a woman who wanted to go to the Bahamas on vacation. However, her financial situation was not too good. So what does she do? She goes straight out, takes a loan against her home, and is on the next flight to the Bahamas.

Now with interest rates rising on these loans, it is not too difficult to imagine such people finding it difficult to make their payments. But guess what, it needn’t be this way. Just because these loans are easily available, you don’t have to take them. Borrow against your home only if you have a need that is important like refurbishing your home or completing your education – anything that will help you in real terms.

Piggyback Loan – Not Lucrative Anymore

There are quite a few things that your mortgage professional will not tell you about. Don’t worry they are not trying to hide these facts, they just don’t know. High up on the list of don’t knows is the fact that piggyback loans are not as good as mortgage insurance. But before we get into details, let’s explain a piggyback. Simply put, a piggyback is described with three numbers that should add up to 100. An 80-10-10 piggyback is one where you get a mortgage for 80 percent of the price, borrow 10 percent as an equity loan or credit line, and make a 10 percent down payment.

There was a time when home equity lines of credit were cheap – they came at 4 or 5 percent. Then, piggybacks were almost always cheaper. However, now with the rates almost doubled, piggyback loans are no longer lucrative as they have higher monthly payments.

‘Dead’ Money In Your Home’s Equity? Free It

There are many senior citizens who bought houses way back when the prices were quite low. Now the prices of these homes have doubled and in some cases, even trebled. Instead of sitting on so much idle money, many of these people want to use the equity in their homes. One way of doing this is by taking a reverse mortgage.

However, if you belong to this category of people and want to use your home’s idle equity, one of the first things you need to do is answer a few questions: "Are you in reasonably good health and do you plan to stay in your home at least five years?" If your answer is "yes," then a reverse mortgage could be ideal for your situation. There are also quite a few other things you need to take into consideration before you decide to cash in on your home’s equity. Mortgage101.com reports:

However, I do not recommend obtaining a reverse mortgage to use the cash for investments because chances of your earning at least as much as the money costs are very slim.

Read more: How to free up 'dead money' in home equity

Reverse Mortgages For Seniors

If you are a senior trying to make ends meet on your limited income, don’t consider selling your home in case of an emergency wherein you require finances. By using a reverse mortgage, seniors 62 years or older can still live in their homes while using the equity for monthly income or receiving lump-sum payments. Belleville.com reports:

Unlike ordinary home equity loans, a Housing and Urban Development reverse mortgage does not require repayment as long as the borrower still resides in the home. Lenders recover their principal, plus interest when the home is sold. The remaining value of the home goes to the homeowner's survivors. You can never get more than your home value.

Read more: Fairview hosts mortgage workshop

Know How Your Lender Assesses You

Taking a loan against your home’s equity is not a simple and easy decision. It is one that has to be mulled over, you need to examine the various lenders available, check their offers and decide on the loan that offers you maximum benefits. Now, before offering you that loan, the loan officer will assess you on various fronts and only if you match up to their criteria, will you get a great loan.

One of the most important things here is your creditworthiness. The lending institution considers your creditworthiness when deciding whether to extend a loan and how much of an interest rate you will pay. Your creditworthiness involves three things: your credit history, your income and the loan-to-value ratio. Bankrate.com reports:

Lenders want to know how much you make and how long you've been at your job, as well as how long you have been working in your particular field. They will look at your total debt-to-income ratio: How much of your monthly income goes toward paying the mortgage, credit card bills, car payment and other obligations, including the payments on the equity debt for which you are applying. Most lenders want to keep that ratio under 36 percent.

Read more: What lenders look for