Friday, February 25, 2011

Home Equity Loan Comparison - An Overview of Home Equity Loans

In an economy where housing prices are increasing and employment rates are stationary, the use of an equity loan is often the choice of homeowners who need extra funds. Such loans are sometimes known as second mortgages or even third mortgages and, if you have enough equity in your home, are relatively easy to get. Before choosing a lender, the homeowner considering such a loan should submit an application to several lenders and then do a home equity loan comparison to find the best deal. Today, with a struggling economy, this type of loan may be difficult to get, and the choices of terms may be limited.
What Does the Term "Equity" mean?
Home equity can be defined as the cash-in-pocket worth of the home. To calculate this amount, the estimated market price of the home less the amount of money still owed on the home is considered the equity. At the time of purchase, the equity technically is zero. If you make a down payment, that amount reduces the principal and gives you some ownership in the home. When you make your mortgage payment each month, a tiny portion of the payment is applied against the principal. As the amount owed decreases, the equity is increased by a like amount
As market prices of homes in the neighborhood increase, the value of your home is assumed to have increased as well. This is the second way in which home market values can be improved. If you were to sell the home at the improved price and pay off the existing mortgage, you would receive the difference, that is the equity, in the form of cash..
Your home's equity will be increased if the value of your home improves because you have carried out home improvement projects to the building. Adding a room, upgrading the kitchen or bathroom or adding significant energy saving features typically increases the market value, and thus the assumed equity.
Home equity loan Proceeds Usage
An equity loan on your home makes sense for the borrower when there is need of significant cash at a low interest rate. Because the proceeds of the loan are secured by the home's value, it typically costs much less than credit card debt. Sometimes the homeowner will pay off credit cards and other loans with a high interest rate by taking out a home loan.
Another common use for the proceeds of a second mortgage is the cost of college for you or for family members. An equity loan may be needed for catastrophic medical expenses not covered by insurance plans. Home owners sometimes obtain home equity loan funds in order to pay for major improvements or repairs on the home, especially those that increase its value.
What Borrowers and Lenders Look For in a Loan
Lenders want to know that you can repay the money that you borrow on your home's equity. The amount of the loan, the length of the repayment period, your credit score and the interest rate all affect the amount of monthly repayment on the loan. The lender usually looks at the current market value and the amount of equity you have accrued before setting the amount they are prepared to make available in the form of a loan.
Sadly, for many, a bad credit home equity loan is their only option of releasing the equity in their home. With a refinance home equity loan, lots of factors are taken into consideration. To get free information on many aspects ofhome equity loans visit our website now.

Saturday, March 20, 2010

Fixed Home Equity Loan

Feeling safe and secure is all out important in these times of recession. That is why a lot of people prefer a fixed home equity loan. As the name suggests a fixed home equity loan is based on a fixed interest rate, which means that you wont get a nasty surprise, if the interest rate suddenly jumps unexpectedly.

Why should you get a fixed home equity loan

Well, there are several good reasons.
  • Perhaps over time you have accumulated a few smaller debts from purchases of a car, a PC, a vacation, etc. and now you are paying a relatively high interest rate on these different small loans. So if there is room for it you should consider refinancing and get a fixed home equity loan with one flat interest rate. This is a particularly attractive option if you have had your home for a few years and build up some equity.
  • You need cash for repairing or remodeling your home or a new car. Again there may be room for refinancing thereby liberating some funds.
  • Security of a fixed home equity loan. You always know how much you have to pay because the interest rate never changes.
  • To cover smaller purchases you may be able to obtain a home equity line of credit (also known as HELOC), which typically is a lot cheaper than the interest rate most people pay on their credit cards.

Some fixed home equity loan advice

Most credit companies will allow you to borrow up to 80% of your homes equity, but there are some who will let you borrow more - even more then 100%. This can be risky because if you have to stretch to make your payments. What happens if you lose your job? Good advise is to not go above the 80%.

You also do some research when you are looking for a new fixed home equity loan. Even though the interest rate is determined by the Federal Reserve, then this is still more of a guideline, since the different lenders can decide for them selves how much they want to charge. A good practice is therefor to obtain quotes from several lenders and "pit" them against each other to achieve as low an interest rate as possible. Remember, we are talking about a fixed annual rate going for the next 20 or 30 years.