Home Equity Loan Lowdown

The 10 Most (and 10 Least) Valuable Home Improvements when Preparing to Sell your Home

When you're selling a home, you want it to be attractive to prospective buyers. For many sellers, this means taking on renovations. You want these home improvements to add up to profit when it comes time to sell. Otherwise, you're just throwing money down the drain. Check out these home improvements to learn what helps attract buyers and what's a lost cause.

Helpful

1. Tidy up your kitchen: You probably don't need to renovate your entire kitchen to add value to your home; it’s enough to make strategic improvements. It makes sense to replace fixtures and appliances that are old or broken, but don't spend too much money on items that won't appeal to a broad audience.

2. Beautify your bathroom: If your home has just one bathroom, consider adding a new one when you’re planning to sell. Give your existing bathrooms a new look by replacing faded tiles and rusted faucets. If you cannot afford a complete bathroom makeover, scrub your fixtures and tiles until they shine like new. Be sure to remove personal paraphernalia when showing your bathroom to buyers and agents.

3. Perk up the paint: One surefire way to make your home look brand new is to give it a fresh coat of paint on the inside and outside. Wash the grime off before you start on the paint work and keep your choice of colors neutral so that most people will be attracted to them.
 
4. Work on your windows: Replacing your windows, whether vinyl or wood, will add more appeal to your home when you’re planning to sell it.

5. Step up the curb appeal: Potential buyers are more attracted to your house if the exterior is neat and uncluttered. Clean up your lawn, trim your shrubs, rake dead leaves away, and re-seal your driveway.

6. Add air conditioning: Most buyers take it for granted that all homes come with central air conditioning systems. Installing one makes perfect sense when you wish to raise your home’s value. If your present system is outdated, consider upgrading it; your prospective buyers will appreciate the savings on energy bills.

7. Sort out those spaces: Many homes look smaller than they are because of clutter and unnecessary furniture. When you're selling, you want your home to look as large as possible. Make it appear bigger by removing excess furniture and knick-knacks. If your rooms are too small, consider taking down a wall to make a larger space. Make sure that the wall you tear down is not a supporting structure. If your home does not have a garage, see if you can convert a part of your garden or lawn into one without incurring too much expense.

8. Build into your basement: If you have empty, open areas like a basement, attic or loft, clear out the rubbish you store in there and consider turning them into utility rooms. If your home does not have enough bedrooms, create one, or better still, leave the space clean and freshly painted so that the new owners can turn it into their own personal space.

9. Put on a patio: Add a patio or deck to the space outside your home. Any place you can relax outdoors certainly adds more appeal and value to your home.

10. Stretch those stories: If your home is too small, but you still want to expand, try going up. Consult architects to find out if adding a floor will work out for you.

Hurtful

1. Removing relics: Don't get rid of things just because they're old. Many buyers appreciate original home fixtures like fireplaces and antique bathtubs. Retain the charm of the house by keeping these relics around.

2. A face-lift for your floor: Floor replacement is not always the most sensible of ideas. Often, buyers have their own plans for flooring, so they may want to change the new hardwood you've just invested so much money on. As an alternative, you can offer a flooring allowance that will enable buyers to do what they please.

3. Building more fireplaces: Just because a fireplace looks good in one room doesn't mean you need to add one to every other room. Most buyers are not looking for a fireplace in every room, and will not be willing to pay more just because they exist.

4. A swimming pool: While pools are useful when you throw a party or need to relax, they are high maintenance and do not add value when you’re looking to sell your home, especially if you live in a neighborhood where no one else has a pool.

5. Banking on a bar: Home bars are a personal preference that not all potential buyers will appreciate. It’s a bad idea to spend money on installing a bar just to make your place more lounge-worthy.

6. A Jacuzzi: Jacuzzis and hot tubs are not for everyone. You may see that fancy built-in MP3 player, radio or aromatherapy fixture as a valuable improvement, but most others would be reluctant to pay more for such trivialities.

7. Taking on technology: Before you splurge on the latest in elevators, home theater systems and stereo systems than echo all through the house, stop and work out the costs involved. Most technology is soon outdated, and you don’t want to be left holding the bill for something that the next owners do not appreciate.

8. Forget the fancy fittings: If you want to sell fast and at a good price, don't bother with personalized fixtures. Fitting your home with fancy aquariums or customized rooms and cages for pets is not the way to raise your home’s value.

9. Replacing the roof: Roofing is expensive and not a large focus for home buyers. Unless your roof is in need of repair, replacing it will not bring in any extra money when you sell your house.

10. Go easy on your garden: All you need to do to your garden is keep it neat and well-maintained. Forget the decorative fountains, elaborate sculptures and ornamental birdhouses and let the greenery speak for itself.

'RAM' Into Your Home's Equity

If you are a senior person, then you probably need to know about reverse annuity mortgages (RAM). These mortgages were created to allow older Americans to tap into the equity of their paid for or nearly paid for home. Homeowners receive a tax-free payment each month, and the mortgage is paid when the home is sold. Bestsyndication.com reports:

The major difference between a RAM and a home equity loan is when the loan balance is due. With a RAM, the mortgage balance is due when you stop living in the residence. You don’t have the monthly payments of an equity loan. With a RAM it is easier to qualify for the mortgage since you don’t have to have income to make monthly payments.

Read more: Reverse Annuity Mortgage – Tapping Into Your Equity

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 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

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

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

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.

‘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

Avoid Home Equity Loan Scams

I’d recently written about home equity loan scams and how you should be careful to avoid unscrupulous lenders. I thought I should elaborate on the subject, so here I am again with some more information on these scams. One of the most common scams employed by scamsters involves stripping homeowners of their home’s equity. Equity stripping, as it is called, occurs when a homeowner is approved for a loan s/he cannot afford to pay. An honest lender will approve a homeowner only for an affordable amount of money irrespective of the equity your home has gained. This is done to help you avoid possible foreclosure. However, there are other lenders whose aim is to get you to foreclose, so they approve you for a high home equity loan. This decision is not based on your ability to afford or repay the loan. Obviously, when you know that you can get more money against your home, it’s natural to be tempted. However, what you may not realize is that it is easy to obtain the loan but next to impossible to maintain the high payments.

The simplest way to avoid equity stripping is by getting quotes from multiple lenders and going in for the most competitive offer. And, my biggest piece of advice… don’t let greed cloud your senses. If the home equity lender approves you for a ridiculously high amount based on your home's equity, be extremely cautious – rather, it’s best to not deal with such a lender.

Another common practice that unscrupulous lenders employ is to switch the terms of the agreement once they know the homeowner will take the loan. Here the mortgage lender will offer you one set of loan terms and they will be good enough for you to accept. However, at the loan closing, they will switch the terms and because they do this at the last minute, many homeowners feel pressured to comply with the new terms. This may include a higher interest rate and higher loan fees. The simplest thing you can do in such a situation is walk away from the deal.

2 Tips To Help You Be Comfortable With Your Loan

While I have been taking every opportunity available to tell you about reasons for which you shouldn’t take a home equity loan, I somehow forgot to tell you about when you can take a home equity loan. So, how do you decide if you can take a home equity loan?

Gauge Your Need: One of the first things you need to do when you are in need of money is to gauge that need. Do you need a very small sum of cash or money for just a short period? If yes, then you will be better off using your credit card or even taking a short term unsecured loan. These options will work out better for you in such cases. The thing with home equity loans is that while they are a sensible option, taking such a loan can be a lengthy process and hence you should find out if there is a faster and more affordable option for you.

Go for a home equity loan if you are planning to borrow a substantial sum of money for a long period. Depending on the equity in your property, you could borrow quite a large sum.

Gauge Your Comfort Level: And now, let’s move on to the factor that will help you make your final decision. The most important thing is that you should be sure that you can comfortably afford to make the required monthly payment. You should not have to stretch your resources to make your monthly payments. Your home could be at stake if you cannot repay on time, so don’t be too greedy when taking the loan. Know exactly how much you need to borrow and what your home is valued at. It will help if you have a repayment plan in place to meet the repayment period.

Equity Loan Scams You Need To Be Aware Of

Rising home values across the country are tempting homeowners to take advantage of their equity, and put the money to good use. However, there are quite a few scams that you need to know about so you can be alert and know if a mortgage lender is trying to con you. Associatedcontent.com reports:

A common practice with mortgage, refinance, and home equity loans, this tactic involves the mortgage lender offering one set of loan terms, and than switching the terms at the loan closing. Because the switch is very last minute, many homeowners feel pressure to comply with the new terms. This usually includes a higher interest rate and higher loan fees.

Read more: Home Equity Loan Scams

Home-equity loan & Tax

This is a query that most people have: how do you calculate the percentage of interest that is tax deductible on your home equity loan. Well let’s give you a lowdown on how exactly you cold do it. First a little information – there are quite a few variables that you must consider while calculating the proper amount of deductible interest on mortgage or home-equity loans. These variables include your filing status, the fair-market value of your home, origination dates of previous mortgages and remaining debt.

One of the first things you will need to do is get the IRS Publication 936, Home Mortgage Interest Deductions. This book will give you a thorough explanation of how such calculations are made. It also includes a flowchart to help determine if all or part of your mortgage or equity interest is deductible. You can either pick up a copy of the book or download one at www.irs.gov. The second thing you might consider getting is a good accountant.

Borrowers Beware!

If you own a home, it is probably your biggest single asset. And a home equity loan puts a question mark on your possession. Agreed, you have only taken a loan and plan to repay it as soon as possible, but that doesn’t reduce your risk. Homeowners-particularly elderly, minority and those with low incomes or poor credit-should be careful when borrowing money based on their home equity.

That’s because certain abusive or exploitative lenders target these borrowers. Yes, you may think it’s only a loan, but you are probably being cheated of your money AND your home. 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 has urged people to be aware of these loan practices to avoid losing your home. Ftc.gov reports:

This lender may be out to steal the equity you have built up in your home. The lender doesn't care if you can't keep up with the monthly payments. As soon as you don't, the lender will foreclose-taking your home and stripping you of the equity you have spent years building. If you take out a loan but don't have enough income to make the monthly payments, you are being set up. You probably will lose your home.

Read more: Home Equity Loans: Borrowers Beware!

Consolidate Your Debts with A Home Equity Loan

Since we all know how interest rates have gone up and how home equity loans are no longer what they used to be, do we still need to be bothered with these loans? Yes, if you ask me. These loans are still helpful and lifesavers in some situations. The fact that you can get a home equity loan, even if you have less than perfect credit, makes it an even more exciting option. While the most common use for a home equity loan is for home improvement, you can also use these loans to settle:

• Credit card debts
• Auto loan
• Personal loans
• Student loans

Or, you can consolidate your debts, by taking a home equity loan and paying off your creditors. So now, instead of multiple creditors and innumerable loans, you have only one creditor and one loan. It is easy for a homeowner to consolidate his/her debts because you are using your home as a collateral for the loan. One thing though – agreed home equity loans are granted to people with less than perfect credit but the amount of loan for such people is lesser. In simpler words, the amount a homeowner can borrower depends on his/her income and credit rating. So if you have a low credit rating and several credit mishaps, you will likely get approved for less.

And how can the equity of the home be determined so you know how much you can get as loan? Well, it’s simple math. The difference between your home’s market value and the amount you owe to the mortgage lender is the equity. So, if your home is worth $500,000, and your mortgage balance is $250,000, the equity will be $250,000. In this case, the owner can expect to receive a loan of up to $250,000. However, homeowners are rarely approved for the full equity amount.

Beware of Frauds

If you are a prospective borrowers, better beware of the many frauds and other problems that are associated with some lenders. If you have a bad credit, you are especially vulnerable. The Federal Trade Commission (FTC) has issued a warning to people urging them to be aware of such loan practices to avoid losing your home.

I know it sounds scary and you begin to wonder if you could actually trust anybody. But there is no need for a panic attack. When you plan to borrow, try to keep a cool head and find out if the lender you approach is credible. Some lenders try to ‘steal’ your equity by asking you to pad your income in order to qualify for a loan. Why do they do this? Because at some point of time, you will be unable to make your payments. The lender will then foreclose your home and take away your equity.

Loan flipping is another method used to scam prospective barrowers. This entails a lender making an offer soon after you refinanced your home. He may say you can take a bigger loan for a vacation or other reason. If you accept the offer, he will refinance your original loan and then will lend you the additional money. With each new loan, the lender or broker may collect new points or fees.

Plan For Disasters with HELOCs

Financial stability is something that you can dream about while in real life, you have to deal with mortgages, car notes and massive amounts of credit card debt, ... most people struggle to get by from month to month. And when you are so tightly stretched, you cannot even imagine how bad your financial condition will be in the event of an emergency. But there are certain ways in which you can prepare for such a situation -- setting up a home equity line of credit is one such way. Bestsyndication.com reports:

Unlike a home equity loan, which provides you with a lump sum of cash right away, a home equity line of credit provides you with cash that you can use a little at a time, and only when you need it. If you don't actually take any money out, you don't have monthly payments.

Read more: Avoid Financial Disaster With Good Planning

Use Your Line of Credit to Own Your Home

You've been renting a house for far too long and now long to own a home of your own but don't have the financial werewithal to consider such an option. Now, now, life ain't so bad. If you don’t have the down payment to purchase a house but are able to afford a house payment as much as your monthly rent, an 80-20 (80% first mortgage - 20% second mortgage) no money down loan could get you out of the rent trap. Bestsyndication.com reports:

MortgageDaily.Com shows “The second lender-the one who is only financing 5% to 20% of the loan-doesn't see much benefit from lending the money unless he can actualize a high interest return. If the buyer borrows from the same financial institution, they could open a home equity line of credit and withdraw two separate amounts; one amount for 80% of the loan and 20% for the “down payment”.

Read more: Using a Second Mortgage for an 80-20 No Money Down Home Purchase Loan

You Could do With a Home Improvement Loan

You love your home and are very proud of it. You now wish to remodel certain parts, fix up the house or maybe just paint it. These things don’t come cheap and if you haven’t set money apart for this purposes, you have a few options that will help you get your house spruced up.

One way to do it is by purchasing the goods and services required with your credit card. This may be an easy and quick option but is by no means, a cheap method. Don’t forget the high rates of interest on credit cards! Another option is to get a home improvement loan, which is a 2nd mortgage that will fund the project. You will find there are many different lenders available that offer different terms and interest rates. You need to know how much the improvements are going to cost. The best part of a home improvement loan is that you have added value back to your home. Maintaining your home and keeping it in great condition will add value for years to come. Whether it is landscaping, roofing, an addition, or a kitchen remodel, a home improvement loan is one way to finance your project.

Lose the Line, Get Fixed

In the past two years, home equity lines have gone from being something that gave homeowners access to money at rates lower than both fixed-rate home equity loans and first mortgages to a rock around the wearer's neck. I know that sounds a bit overboard, but what should you say when the Federal Reserve Board raises short-term rates something like 16 times since mid-2004, raising the prime rate from 4 percent to 8 percent. Ouch? Townonline.com reports:

If you have a home equity line of credit that you want to get out from under you have three basic options: 1) keep the credit line; 2) pay it off and replace it with a fixed-rate home equity loan, or 3) do a cash-out refinance on your first mortgage and pay off the credit line with the proceeds.

Read more:Best to get rid of credit line and get fixed-rate loan

5 routes to freedom

In the past two years, consumers have watched helplessly as the the rates doubled on their home equity lines of credit. However, now as the dust settles, we realize that there is actually no need to worry since there is a way or rather five ways out of this mess. Naplesnews.com reports:

Sometimes it makes sense to refinance at a higher rate. “That sounds completely opposite what a refinance is supposed to do,” says Anthony Hsieh, president of LendingTree. And that’s why it’s best to look at all the options.

Read more: Lowering the cost of a home equity line of credit

Home equity loans are not for seniors

Are you a retired person who has dispensed of most of his/her debts, your mortgage is almost paid off and you own a beautiful home and have a fixed income? A word of advice: steer clear of home-equity loans. It is indeed tempting to take one of these loans. Imagine the loan you can get by using the equity on your home as a collateral. There are quite a few things you could do with that money – go on a vacation for one. Or even satisfy a simple urge to buy yourself a new car. The problem is that you may be stuck with a loan you cannot repay and then lose the home that you have taken so many pains to acquire.

If you are badly in need of money, for example, you may need to pay major medical bills or make home repairs, instead of a home equity loan you could try a reverse mortgage. With a reverse mortgage, which is another type of loan based on the equity of your home, you don't need an income to qualify, and no principal or interest payments are normally due until you move, sell your home or die.

Worry about interest rates? Not me!

In the past year, consumer credit, or non-mortgage loans to individuals rose $4.4 billion, or 2.5 percent at an annual rate, to $2.174 trillion. The figures suggest that Americans are using their credit cards to finance more purchases. You are probably wondering why I’m speaking about credit cards on this site. Rising interest rates and the slowdown in the rise of real estate values seem to be creating problems for those who want to borrow against their home. Today, extracting the untapped value of your home has become more expensive and could even be downright risky if the housing market continues to cool.

While increasing interest rates on your home home-equity line of credit can be a cause for extreme worry, I personally feel that there’s no need for worry… yet. Don’t think of taking any drastic steps– there are plenty of options available to help ease your debt.

Here are three options that experts are talking about:

• Pay more: Sounds crazy? Well try keeping the loan, and paying more per month so, you'll be paying down the principal balance. Try it and see the benefits
• Pay off: Pay off the line of credit with a fixed-rate home-equity loan. You lose some of the flexibility of line of credit but you have a fixed rate and fixed monthly payment.
• Re-fi: Try a cash-out refinance, in which you refinance your first mortgage and take out enough to pay off your line of credit. Don’t forget to take a little extra cash out for yourself.
• Smart option: Try paying off your first mortgage and your line of credit and combine them to reduce your overall monthly payments.

While none of these options are a ‘one size fits all’ kind of solution, you can assess your needs and choose the one that suits you best.

First Timers Awareness

First timers… looking home category… you are the prospective bet for the home equity loan providers. "We can help!" - You will be told by lenders. Are you ready for that deal? Ideally speaking, don't be too averse to such calls because they end up helping you when the chances appear least.

If you are a prospective first time home owner, or need a competitive home loan rate, to get started many home equity loan companies can help. From providing information on your need to making an informed decision on what the best mortgage type for you could be.

The moment some lenders approach it is our duty to neglect them; they are cheating. But why it has to be like that? Don't you give that leeway to a friend who does wrong to you? Don't you give him another chance? Try this philosophy on the lenders too. Believe it. Many approaching lenders are known to provide the best deals in the market. Spending some time with lenders, who it may be, would give you insight of the market. Take this opportunity of an exhaustive study… remember, you are doing so for your home.

Here's how you calculate home equity loan deduction

This is a query that most people have: how do you calculate the percentage of interest that is tax deductible on your home equity loan. Well let’s give you a lowdown on how exactly you cold do it. First a little information – there are quite a few variables that you must consider while calculating the proper amount of deductible interest on mortgage or home-equity loans. These variables include your filing status, the fair-market value of your home, origination dates of previous mortgages and remaining debt.

One of the first things you will need to do is get the IRS Publication 936, Home Mortgage Interest Deductions. This book will give you a thorough explanation of how such calculations are made. It also includes a flowchart to help determine if all or part of your mortgage or equity interest is deductible. You can either pick up a copy of the book or download one.

Things you can do with your home equity loan

Here’s a believe it or not fact: Americans have more than $11.2 trillion in home equity! Incredible isn’t it. Especially when you realize that the number of Americans with huge outstanding debts is also quite high. So why don’t we try to use the equity in our homes to repay our debts instead of crying about the lack of money? Well, quite a few people are doing just that.

Since a loan against your home is so beneficial, let us also take a look at the legitimate uses it can be put to. I mean, when you are borrowing money that comes at a lower rate of interest than your credit card, you cannot just go spending it on fancy vacations can you? You must have a plan in place. Here are some tips on how to use your home equity wisely.

Pay off your debts: If you have any outstanding credit card debt, then a home equity loan is a boon to you. Interest rates for credit cards are very high so if your debt is mounting faster than you can say home equity loan, then it’s time you paid of those debts using your lower-interest home equity loan," says Coffin. Just make sure to cut up the credit cards first. But, a word of caution – cancel your card if you cannot check your spending habit. It doesn’t help if you pay off your old debts only to incur new ones.

Home improvements: This is one great investment you can make with your home equity loan. You can upgrade your kitchen, bathroom or even fix your roof. This will help increase the long-term value of you home. But don’t go overboard with your improvements or you may end up pricing your house out of the market.

Tips to avoid frauds

Home equity loans are one of the most popular type of loan facility available today and most people still borrow loans on their homes for purposes like funding a child’s college education or refurbishing the home and other needs. Because this industry is so lucrative and the prospects are mind numbing, you must be especially careful and beware of the many frauds and other problems that are associated with some lenders. This warning is directed especially at people with a bad credit, since they are very vulnerable.

A few simple tricks will ensure that you aren’t conned:

• Avoid offers to lend you more than 100 percent of your home equity. Remember, interest on the loan above the equity is NOT tax-deductible!
• If you have a bad credit score, some lenders may ask you to pad your income in order to qualify for a loan. Don’t deal with such lenders. They know that you may be unable to make your payments at some point of time and are waiting for the right opportunity.
• Always read the fine print before you sign any documents.

Opt for a home makeover instead of a new home

In the past couple of years, remodeling of a home seems to have become the 'IN' thing. The soaring home values and low interest rates over the past several years also have fueled the remodeling boom. Adn.com reports:

Many people are getting the money to fix up their places by borrowing from their home equity. With the sharp increases in Anchorage home values recently, even people who have owned their houses for only a few years are qualifying for home-equity loans and lines of credit, said Darrell Lampert, an assistant vice president in charge of First National Bank Alaska's consumer loan underwriting group.

Read more: Major home makeovers

Home equity loans online: Fast & Furious

The Internet has become a constant in our lives and today; it has even revolutionized the way we shop. We buy everything from pet food to expensive furniture and gifts on the Internet. And you can even shop for loans and insurance while sitting at home. Even home equity loans are now available online and the streamlined process online gives you results in just a day!

The best part is that after you submit your application, your loan will be processed the first business day. Your funds can be dispersed in less than two weeks. The Internet offers the added benefit of being able to quickly compare their loan rates and fees with others. In a matter of minutes, you can have several loan estimates from different lenders by working with an online mortgage broker. Bad-credit-loan-tips.com reports:

When looking at home equity loan costs, consider factors including terms, possible future refinancing, and upfront costs. Picking the right terms for your unique financial situation is just as important as finding low rates.

Read more: Fast Home Equity Loan - Benefits to Applying Online

Benefits of home improvement loans

You love your home and are very proud of it. You now wish to remodel certain parts, fix up the house or maybe just paint it. These things don’t come cheap and if you haven’t set money apart for this purposes, you have a few options that will help you get your house spruced up.

One way to do it is by purchasing the goods and services required with your credit card. This may be an easy and quick option but is by no means, a cheap method. Don’t forget the high rates of interest on credit cards! Another option is to get a home improvement loan, which is a 2nd mortgage that will fund the project. You will find there are many different lenders available that offer different terms and interest rates. You need to know how much the improvements are going to cost. Bestsyndication.com reports:

The best part of a home improvement loan is that you have added value back to your home. Maintaining your home and keeping it in great condition will add value for years to come. Whether it is landscaping, roofing, an addition, or a kitchen remodel, a home improvement loan is one way to finance your project.

Read more: Home Improvement Loans – Benefits to a Home Equity Loan 2nd Mortgage

Tips to use your home equity

Did you know that Americans have more than $11.2 trillion in home equity! Sounds incredible doesn’t it, especially when you realize that the number of Americans with huge outstanding debts is also quite high. Makes one wonder why we don’t try to use the equity in our homes to repay our debts instead of crying about the lack of money. Well, there are quite a few people who are doing just that.

Since a loan against your home is so beneficial, let us also take a look at the legitimate uses it can be put to. I mean, when you are borrowing money that comes at a lower rate of interest than your credit card, you cannot just go spending it on fancy vacations can you? You must have a plan in place. Here are some tips on how to use your home equity wisely.

Pay off your debts: If you have any outstanding credit card debt, then a home equity loan is a boon to you. Interest rates for credit cards are very high so if your debt is mounting faster than you can say home equity loan, then it’s time you paid of those debts using your lower-interest home equity loan," says Coffin. Just make sure to cut up the credit cards first. But, a word of caution – cancel your card if you cannot check your spending habit. It doesn’t help if you pay off your old debts only to incur new ones.

Home improvements: This is one great investment you can make with your home equity loan. You can upgrade your kitchen, bathroom or even fix your roof. This will help increase the long-term value of you home. But don’t go overboard with your improvements or you may end up pricing your house out of the market.

Avoid home-equity loans for unnecessary expenditure

Have you received a financial aid letter from a college recently which tells you that your offer may come up short? Don’t go in for that home-equity loan yet. I know I’ve made this point earlier, but when it comes to education and higher education especially, people tend to let their hearts lead. So the argument goes that if the extra money that the equity loan brings can see my son/ daughter through college, it’s worth it.

While borrowing against your house is a source for college funding, whether to tap it should be a decision made as carefully as the college choice itself. If you make one wrong move here, you could end up complicating both your tax and retirement situations. And when you begin to think about the irksome things like the alternative minimum tax, you may want to avoid borrowing against your home and would probably want to opt for a conventional college loan instead. Quote.bloomberg.com reports:

Taking out a home-equity loan without thinking about the consequences can get you into trouble. Often offered as lines of credit, these packages are frequently pegged to variable interest rates, which have been rising over the past year.

Read more: Why Home-Equity Loans for College Can Be a Bad Idea: John Wasik

Home equity loan industry fraught with frauds: FTC

Home equity loans offer some of the best terms in the industry – interest rates are still much lower than that for other loans. Because this industry is so lucrative and the prospects are mind numbing, you must be especially careful and beware of the many frauds and other problems that are associated with some lenders. This warning is directed especially at people with a bad credit, since they are very vulnerable.

These frauds have bored so deep into the system that the Federal Trade Commission (FTC) was forced to issue a warning to people urging them to be aware of such loan practices. If you don’t take heed, you may end up losing your home, it warned. I know it sounds scary and you begin to wonder if you could actually trust anybody. But a few simple tricks will ensure that you aren’t conned. Timesleader.com reports:

Avoid offers to lend you more than 100 percent of your home equity. Interest on the loan above the equity is not tax-deductible and you’ll have even less recourse if you run into money trouble.

Read more: It pays to study details of home equity loans

Tips to take a home equity loan

While I have been taking every opportunity available to tell you about reasons for which you shouldn’t take a home equity loan, I somehow forgot to tell you about when you can take a home equity loan. So, how do you decide if you can take a home equity loan?

One of the first things you need to do when you are in need of money is to gauge that need. Do you need a very small sum of cash or money for just a short period? If yes, then you will be better off using your credit card or even taking a short term unsecured loan. These options will work out better for you in such cases. The thing with home equity loans is that while they are a sensible option, taking such a loan can be a lengthy process and hence you should find out if there is a faster and more affordable option for you.

Go for a home equity loan if you are planning to borrow a substantial sum of money for a long period. Depending on the equity in your property, you could borrow quite a large sum.

And now, let’s move on to the factor that will help you make your final decision. The most important thing is that you should be sure that you can comfortably afford to make the required monthly payment. You should not have to stretch your resources to make your monthly payments. Your home could be at stake if you cannot repay on time, so don’t be too greedy when taking the loan. Know exactly how much you need to borrow and what your home is valued at. It will help if you have a repayment plan in place to meet the repayment period.

With these tips, you don’t have to worry about rising interest rates

Increasing interest rates on your home home-equity line of credit can be a cause for extreme worry. But don’t think of taking any drastic steps yet – there are plenty of options available to help ease your debt. Nbc10.com reports:

You can also do a cash-out refinance, in which you refinance your first mortgage and take out enough to pay off your line of credit and take a little extra cash out for yourself.

Read more: You Can Do Something About Interest On Home Equity Loans

Home equity loan tips for first timers

You probably have taken some important financial decisions and need the finance to see them through. So, you decide to take a loan against your home. What often happens is that since you in a hurry to ensure that you get the finance at the earliest possible, you may try to take the first loan that seems to be competitive and good without examining other options. Experts however opine that 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. The two basic rules of getting yourself the best home equity loan possible: Educate yourself and shop around. 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.

Check these options on home equity lines

Do you have a home equity line of credit? If yes, then you are probably wondering whether you should keep the credit line, even though the rate has almost doubled in 21 months or refinance it. It is a pretty tricky and confusing question. You may have to resort to some math to find the correct solution to your problem. Until two years ago, home equity lines of credit were great deals. You the homeowner, had access to money at rates that were lower than those on fixed-rate home equity loans or first-lien mortgages.

However, the fact that credit lines are indexed to the prime rate meant that the good times couldn’t continue forever. Every time the Federal Reserve raises short-term rates, borrowers' minimum monthly payments go up. Since 2004, the rates have been raised so many times that now the prime rate has gone up from 4 percent to 7.75 percent! Sunherald.com reports:

Borrowers now have three options: keep the credit line, pay it off and replace it with a fixed-rate home equity loan, or do a cash-out refinance on the first-lien mortgage and pay off the credit line with the proceeds.

Read more: Three options to consider with a home equity line

Shopping for a home equity loan? Beware of frauds

If you are a prospective borrowers, better beware of the many frauds and other problems that are associated with some lenders. If you have a bad credit, you are especially vulnerable. The Federal Trade Commission (FTC) has issued a warning to people urging them to be aware of such loan practices to avoid losing your home.

I know it sounds scary and you begin to wonder if you could actually trust anybody. But there is no need for a panic attack. When you plan to borrow, try to keep a cool head and find out if the lender you approach is credible. Some lenders try to ‘steal’ your equity by asking you to pad your income in order to qualify for a loan. Why do they do this? Because at some point of time, you will be unable to make your payments. The lender will then foreclose your home and take away your equity. Bestsyndication.com reports:

Loan flipping is another method used to scam prospective barrowers. This entails a lender making an offer soon after you refinanced your home. He may say you can take a bigger loan for a vacation or other reason. If you accept the offer, he will refinance your original loan and then will lend you the additional money. With each new loan, the lender or broker may collect new points or fees.

Read more: Home Equity Loans Pros and Cons - Warnings From The FTC and What to Look For When Shopping For a Home Loan - Bad Credit Refinancing

Study the details of your home equity loan

While home-equity loans and lines of credit are extremely popular even today, it is important to look for other means of credit. In the recent past, when the housing market was in a much better shape, quite a few Americans used the equity in their homes to finance other expenses. Timesleader.com reports:

But times are changing. Interest rates on short-term home-equity lines of credit have spiked even as the housing market is slowing, which means homeowners will have less of a cushion to fall back on should they be unable to repay borrowed money. Check current rates.

Read more: It pays to study details of home equity loans

Home Equity Scams – What Might Hit You!

If you are not careful enough, some smart and smooth talking lender will run scot free with your precious equity and take away your home. Here’s what these scamsters might try.

Never believe in a “Home Improvement Loan” – If a contractor calls on you and offers to install a new roof or remodel your kitchen at a very reasonable price, beware! He might say that he knows a lender who would arrange for the financing. You agree to the project thinking what great luck you have, to have got the job for such a nice price! Well, open your eyes.

You would be asked to sign a lot of papers. Either these might be blank papers or the lender would not give you enough time to read through them. On the other hand, if you hum-n-haw, the contractor, threatens to withdraw his “kind” offer. You are in a fix now. You sign the papers but realize later that you just took a home equity loan!

The downside in this scam is that the interest rates are high, the points touch the sky and the fees are astronomical. Moreover, the kind contractor hasn’t shown his prowess. The work is downright shabby. He is long gone, leaving you with an unwanted loan!

Credit Insurance Packing – This type of scam is different. At closing, the lender asks you to sign some papers, that include charges for credit insurance or other fringe benefits that you never asked for and probably do not want even.

The lender hopes you don’t notice. He doesn’t even bother to explain the terms, even if you ask. But you don’t ask for fear of rejection of the loan. The lender might even tell you that the insurance comes with the loan, and gives you a feel that it is free. But wait, it is not free, and you do not want it. If you buy the insurance, you also get a product that you don’t require; you end up paying for it. Be careful with your home equity. It is precious.

Negative equity pitfalls

A Home equity loan is a second mortgage on your home, which is also the offered collateral, and if you are not wise about the actual value of your home, you will probably end up with `negative equity'. Negative equity is what you get if you borrow 125% the value of your home so in the event of a relocation and you are forced to move you will not be able to sell the house at the rate of equity on which you borrowed.

It actually might mean that you will be trying to pay off your home equity loan when you are on the lookout for new home. Not only that, you normally need your lender's permission if you want to sell. If you have used your home as collateral for any other loans, you may need permission from whoever provided those loans as well.

However, if you have enough savings to pay off the negative equity and the costs involved in selling you can sell your home in the normal way. The other option is to wait for property prices to go up and sell when your home increases in value or get expert advice. The pitfall of negative equity can be avoided, if you make a realistic value assessment of your home before going in for a home equity loan.

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!