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!