Home Equity Loan vs Home Equity Lines of Credit, Variable vs Fixed Rates
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home equity loans definition:
A loan that is guaranteed by your home.
A loan that allows owners to borrow against
the equity in their homes.
A loan secured by a person's home.
There are two types of home equity loans
1:the standard home equity loan
2:home equity line of credit
In a standard home equity loan, a specified amount of money is loaned in a lump sum for a specified period of time. A standard home equity loan is also called a term loan, a closed-end loan or a second mortgage installment loan.
Good For:
Major one-time expenses such as:
Buying a new car
Financing the down payment on a house
Consolidating bills
Payment:
Predictable monthly payments that stay the same no matter
how the economy may change.
Interest Rate:
Fixed interest rate.
In home equity lines of credit, a loan providing you with the ability to borrow funds at the time and in the amount that you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Good for:
Ongoing expenses including:
Home improvements
Educational and medical expenses
Life events such as a new baby or wedding
Small business expenses
payment:
Monthly payments, including interest only that
vary depending on the current rate and amount you’ve borrowed.
Interest rate:
Variable interest rate tied to the prime rate
Shopping for a Home Equity Loan?
Shop, Compare, Negotiate.
Federal Trade Commission
If you decide that the timing’s right for a home equity loan, ask your friends or family for recommendations of lenders. Then, comparison shop. Comparing loan plans will help you get a better deal.
Contact several lenders, not just the ones that send you mail, call you, or knock on your door. Talk with banks, savings and loans, credit unions, mortgage companies, and mortgage brokers. Remember, brokers don’t lend money: they help arrange loans.
Ask all the lenders you interview to explain the loan plans they have for you. If you don’t understand any loan terms and conditions, ask questions. They could mean higher costs. Knowing just the amount of the monthly payment or the interest rate is not enough. Pay close attention to fees, including: the application or loan processing fee, origination or underwriting fee, lender or funding fee, appraisal fee, document preparation and recording fees, and broker fees which may be quoted as points, origination fees, or interest rate add-on. If points and other fees are added to your loan amount, you’ll pay more to finance them.
Also ask for your credit score. Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences – like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts — is collected from your credit application and your credit report. Creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — your credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when they’re due.
Negotiate with more than one lender. Don’t be afraid to make lenders and brokers compete for your business by letting them know that you’re shopping for the best deal. Ask each lender to lower the points, fees or the interest rate. And ask each to meet — or beat — the terms of the other lenders.
Before you sign, read the loan closing papers carefully. If the loan isn’t what you expected or wanted, don’t sign the loan. Either negotiate changes or walk away. You also generally have the right to cancel the deal for any reason — and without
Home Equity Loans:
The Three-Day Cancellation Rule.
Federal Trade Commission
you’re considering applying for a personal loan and using your home to guarantee repayment, you should know that a federal credit law gives you three days to reconsider a signed credit agreement and cancel the deal without penalty. Your "right to rescind" or "right to cancel" is guaranteed by the Truth In Lending Act. You can rescind for any reason but only if you are using your principal residence—whether it is a condominium, mobile home, or house boat—as collateral, not a vacation or second home.
Under the right to rescind, you have until midnight of the third business day to cancel the credit transaction. Day one begins after all three of the following occur:
you sign the credit contract;
you receive a Truth in Lending disclosure form containing certain key information about the credit contract, including the annual percentage rate; finance charge; amount financed; and payment schedule; and
you receive two copies of a Truth in Lending notice explaining your right to rescind.
A Home Equity Loan – Is It For You?
by Felicity Walker
Home equity loans are often touted as being the solution to so many things – giving you access to money for home repairs or improvements, a way to consolidate debt, finance a sudden family emergency, or even as a way to start an investment portfolio. There’s a lot to think about, though, before you go and sign up for the first home equity loan you see.
A home equity loan is like a second mortgage on your home. If your home is currently worth $130,000, and you have a mortgage against it for $70,000, then you have $60,000 of equity available. Some home equity loans may allow you to borrow up to 80% of your home’s value, others may go higher in special circumstances. In this example, you would be able to borrow another $34,000 as a home equity loan and still have only borrowed 80%.
So the first step is to get a reasonably good idea of what your home is worth on the market. Your friendly realtor may help with this, but be aware that sometimes they can inflate the value in the hope of getting your business. You can also look at what price similar houses close by have sold for. Or you can pay a qualified valuer to assess your home.
Now you have a starting figure, you can work out how much equity you have in your home. The other important figure to work out is how much you need for whatever purpose you have in mind. Hopefully that works out to be less than the equity available! It’s even better if it’s less than 80% of the available equity.
At this point it’s important not to get carried away. It can be all too easy to say, well, I have $50,000 available and I really only need $30,000 to complete the repairs, so why not borrow $40,000 and blow the rest on a holiday? Remember – the more you borrow, the more it will cost you in repayments. It’s very easy to borrow too much, only to find yourself struggling to meet the payments and maybe even losing your home.
You also need to decide what type of home equity loan you want. There are two main types – a closed end loan and a line of credit. A closed end loan is basically the same as a standard home mortgage – you borrow the amount for a set period of time, and make payments over time to gradually pay off the balance.
A line of credit, on the other hand, is like having a credit card with a big limit. Some banks will require you to make minimum payments each month, others only require payments if you’re at your limit. Either way, the loan will only be for a set period of time, and at the end of that you will either have to extend the time period or refinance the loan with another lender. This type of facility can be useful if you’re disciplined with your money, but if you’re the type of person whose credits cards are always at their limits, it may not be a good idea at all to have ready access to such a large amount of credit.
Next, you need to work out how long you want to borrow the money for. This will vary depending on how much money you are borrowing, the type of home equity loan and how much you can afford to pay. There are lots of good mortgage calculators online that can help you to work this out. If borrowing the money over 5 years for a closed end loan means you won’t be able to meet the payments, then see if spreading the loan over 10 years becomes more affordable for you. You will pay more in the long run, but at least you won’t default on your loan.
When you know what you want, it’s time to go and find it! It may be worth starting with banks recommended to you by friends and family – at least they’ll be able to give feedback on their experiences. You can also shop around online, looking for the best deal.
Finally, when you have chosen the loan you want and are ready to proceed, do two more things. Firstly, check for fees. Banks are aware of the need to be competitive, and will often avoid charging up front fees for that reason. However it’s amazing what can be hidden in the fine print of a contract. So read any loan documents thoroughly before signing. If you can, get the contract explained to you by your legal advisor.
Home equity loans can be a wonderful tool when used correctly. Do your homework first, find the loan that best matches what you want, and go for it. Just make sure you don’t over extend yourself or sign documents that will give you nightmares forever.
Copyright Felicity Walker 2005
About the Author
Investing and finance are two passions of the author. To find out more, check out http://www.homeequityloanzonecentral.com for more information.
Home Equity Line of Credit – Great for Remodeling Projects
by Charles Essmeier
Many homeowners are lucky enough to find a house that represents exactly what they want in a home. They buy it, make the payments on it, and live more or less happily ever after. Others are not so fortunate. Some buyers who live in a pricey market may have to settle for less house than they need, hoping to find a solution to their lack of space later. A third group of buyers may find that their housing needs change over time, as their family size increases. What can be done in these situations?
A common solution to these problems is to add on to the house, often accomplished by converting a garage to a room, adding a room over the garage, or simply adding a room somewhere else on the property. For these projects, a home equity loan is a great source of financing. The home itself is used as collateral for the loan, and the addition actually increases the value of the house. As most of these projects involve a fixed cost, the payments can be structured at a fixed interest rate over a specific period of time. But what about the do-it-yourself project? What if the problem with the home isn’t a lack of space, but a lack of taste on the part of previous owners? Is there a better financing choice in these situations?
If your problem is gold appliances, lime green carpet, and smiley face wallpaper, you may be looking at a remodeling project of indeterminate duration. For such a project, a better financing choice would be a home equity line of credit, or HELOC. A line of credit offers greater flexibility, both in interest rates and repayment terms, than a traditional line of credit. The loan amount is based on the amount of equity in the home, but the funds aren’t dispersed all at once. Instead, the borrower is given a checkbook, a special credit card, or both and can use them to draw upon funds at his or her leisure. Payments only apply when money is actually borrowed, and the repayment plans can be arranged with both fixed and adjustable interest rates, depending on the lender. This is ideal financing for someone who has purchased a fixer-upper home that needs a variety of changes, repairs, or modifications. The credit card can easily be used to purchase paint, drapes, flooring, appliances or whatever the homeowner requires to make the home fit their needs.
If you just need to hire a contractor to add a gameroom to your home, a traditional home equity loan would work well. For ongoing projects with indefinite timeframes and budgets, a home equity line of credit may be the best choice.
About the Author
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation and credit counseling information and HomeEquityHelp.net, a site devoted to information on mortgages and home equity loans.
Links
Bad credit home equity loan vs line of credit, rate, calculator
Online Home Equity Loans: Rates, Quotes, Calculators
Get Free No-Obligation US Home Equity Loan Quotes from multiple lenders, Apply Now! Instant Approval No Credit Check. We can help you get a Home Equity Loan in Texas,California,Florida,Ohio,Colorado,New York.
Understanding An Adjustable Rate Mortgage by Tim Henry
An adjustable rate mortgage is exactly what the name implies; a home mortgage loan with an interest rate that gets adjusted during the life of the loan.
If you go out looking for an adjustable rate mortgage, the lender will usually have two numbers associated with the loan offer; such as 5:1, 1:1, or 3:2. These are some common numbers associated with adjustable rate mortgages, but there are others as well.
The first number indicates the number of years that the adjustable rate mortgage will operate like a fixed rate mortgage until it comes up for its first interest rate review. The second number indicates the interval at which the mortgage will be reviewed thereafter. Fox example a 5:1 adjustable rate mortgage means that the interest rate given at the time of securing the loan is guaranteed for the first five years of the mortgage, and then the rate will be reviewed and adjusted in one year intervals.
When seeking a home mortgage loan you will have a choice of adjustable rate mortgage, like we described above, or a fixed rate mortgage. Unlike an adjustable mortgage, a fixed rate mortgage will remain at the same interest rate for the entire life of the loan.
Before choosing an adjustable rate mortgage, it is important to understand that they have both advantages and disadvantages and the choice of which type of mortgage is best for you will be largely determined by the current market as well as your own situation.
Advantages of Choosing an Adjustable Rate Mortgage
By far, the greatest advantage of an adjustable rate mortgage is that is usually offered at a lower interest rate than a fixed rate mortgage loan. Because the mortgage lender does not have to guarantee the interest rate for the entire life of the loan, he or she is much freer to offer the lowest possible interest rate. Therefore, if you do not intend to hold your mortgage for more than a few years, it might be worthwhile to choose an adjustable rate mortgage and get the lowest rate possible.
There is another advantage to an adjustable rate mortgage, but it is present only in a high interest rate market. If you are securing a mortgage during a time when the mortgage rate being offered is high, by choosing a fixed rate mortgage you would be locked to that high rate for the entire life of the loan. If you choose an adjustable rate mortgage; however, when the market comes back down, your mortgage rate will come down as well.
Disadvantages of Choosing an Adjustable Rate Mortgage
The main reason that many borrowers will not even consider an adjustable rate mortgage is because of the risk level involved with this type of borrowing. With an adjustable rate mortgage, not only is there the chance that your interest rate and monthly mortgage payments will go down, but there is also the chance that they will go up.
For the homeowner who is not comfortable with the risk, and needs to know that their monthly mortgage payments will never change, an adjustable rate mortgage would not be the best choice.
About the Author
This article provided courtesy of http://www.fha-loan-guide.com
Guide to Home Equity Loans by John Mussi
Here is a useful guide to home equity loans. A home equity loan is quite simply a loan against your house. Another term for a home equity loan is a mortgage or second mortgage. Home equity loans are also known as equity release schemes.
You are borrowing on what your house is worth. If your house is paid off, the term is "mortgage" and if your house is not paid off but has equity, the term is called a "second mortgage". For ease of understanding however, this article will refer to these loans as Home Equity Loans.
A home equity loan is a second loan that you take out on your home in addition to your mortgage. This is also called a second mortgage. This enables you to tap into your equity to get cash without refinancing your first mortgage. Many people think that the only way to access this cash is to sell their homes. The reality is that you can take out home equity loans to free it up without having to move at all!
Equity is the difference between the amount you owe on your current home mortgage and the current value of your home. Lot of finance companies today offer good deals on home equity loans, letting you borrow money based on the available equity on your home.
This can be explained further, suppose you sold your home, you will be left with a certain amount of money after paying off your mortgage, which would mean actual cash in your pockets. A home equity loan allows you to get that cash without having to actually sell your home or property.
The amount you can borrow is determined by taking a percentage of your home's appraised value and subtracting the balances of any outstanding mortgages. A home equity loan is fairly easy to get, if you are a homeowner. Some home equity loan companies will allow you to borrow up to 125% of what your house is worth at the current market prices, less the amount that you owe on your mortgage.
A home equity loan is usually a one-time loan, which is paid out in a lump sum. A home equity loan can be used for anything and is usually a fixed interest rate loan.
The cost of the loan will depend on many factors including your personal circumstances, the amount you wish to borrow and over what period you wish to repay back the loan.
Some good uses for home equity loans include debt consolidation, buying of a new car, home improvement, emergency medical expenses or luxury holiday.
People with poor credit ratings will find a Home Equity Loan more easily accessible to them because the lender is taking a lot less risk as the loan is secured against their home.
A Home Equity Loan will usually mean that you get better interest rates on the loan, but you should always remember that your house is at risk if you fail to repay the Home Equity Loan.
About the Author
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.
Fast Loans for Unemployed - Bringing Financial Relief Real Fast by Andrew Baker
A faster approval of loans has a special significance for the unemployed people. Having ended their only source of stable income, finance starts holding a place of prominence in their lives. Without a fast financial assistance in the form of loans for unemployed, they will only go deeper in their debts. Thus, a fast loan for unemployed is a necessity for the jobless individual as against a mere desire as in case of the regular loan borrowers.
The rapidity in approving loans for unemployed must not be seen in comparison with the other regular loans. This is because the case of the borrowers with unemployment is special. They do not have a stable financial income and this is often seen as a risky proposition by the moneylenders. Moneylenders would try to ensure through a series of screening tests whether the money would be safely recovered. The entire process of credit check may be time consuming.
However, one is to ensure that the process is not unduly protracted. A survey of the time taken by loan providers for approving and sanctioning the amount will be advantageous in distinguishing between the justifiable and unjustifiable delay in the process. The time taken for approving the fast loans for unemployed differs between regions and counties. Thus, borrowers must try to get more specific data for a better understanding of the customs prevailing in a particular place.
Making application to the Fast loans for unemployed through the online route will generally be beneficial to borrowers who want a faster approval. As against the mode of application where borrowers can apply only during the office timings of the loan provider, an online website is available for application at all times of the day. Online application to loans for unemployed saves the time involved in documentation. The loan providers can instantly transfer the details of the borrower after checking the reliability of the borrower.
Borrowers with home or other sufficient collateral to back the fast loans for unemployed will have little difficulty in qualifying for the loans. The lack of stable financial income is made good through the presence of collateral. It is not the collateral that is used up in the process. It is the inherent equity in the collateral that gets consumed. For instance, when the loan for unemployed is secured against home, it is the home equity that is used. Home equity is the value that a home can fetch if it is sold in the market at a particular point of time. Fast loans for unemployed taken against ones home is known as home equity loan.
Home equity loans are the cheapest source of finance available to the unemployed. Loan providers understand that at no instance will a borrower intentionally endanger the ownership of his/ her home. By being irregular on loans for unemployed taken against home, one is actually endangering his/ her home. This assures the safety of the amount lent. Rate of interest being dependant of the risk involved in a particular case will be lower in home equity loans for unemployed.
Depending on the period that a person perceives that the period of unemployment will last, the manner of consumption of the home equity loan for unemployed is to be decided. If the joblessness is seasonal or may not last long, the borrower will use the proceeds at once. However, if there is no fixed time period within which the borrower hopes to regain employment, it will be advisable to use the money with caution. Loan providers agree to provide money either through fixed instalments or as a line of credit. The latter is known as a home equity line of credit or HELOC. The biggest advantage of HELOC is that borrowers are charged interest only on the amount drawn and not on the entire sum sanctioned as loans for unemployed.
Do the unemployed people without home have no respite? It isn't so. Nowadays, loan providers do not intend to leave any group untouched from their services. Customer groups that wouldn't have thought of qualifying for the loans too get finance at slightly different terms if they make an exhaustive search. The same applies to fast loans for unemployed for tenants. Fast loans for unemployed tenants are generally unsecured and thus carry a higher rate of interest. An unsecured fast loan for unemployed tenant would thus be expensive. An exhaustive search process will ensure that tenants are not overcharged on fast loans for unemployed for tenants because of their homelessness. It is necessary to unearth fast loans for unemployed tenants from the large number of loan providers and an exhaustive search process will certainly go a long way in this venture.
The unemployed people use the unemployment dole that they receive from the state for making the repayments. The unemployment allowance will also be used for disbursing the other expenses that crop up. Loans for unemployed of greater amount will leave very little of the unemployment allowance for other expenses that too are important. Thus, borrowers must decide the fast loans for unemployed with proper care because any erroneous decision at this stage only creates more problems for the unemployed individual.
Andrew baker has done his masters in finance from CPIT.He is engaged in providing free,professional,and independent advice to the residents of the UK.He works for the Secured loan web site loans fiesta for any type of loans in uk,secured loans,unsecured loans,debt consolidation loans please visit http://www.loansfiesta.co.uk
About the Author
Andrew baker has done his masters in finance from CPIT.He is engaged in providing free,professional,and independent advice to the residents of the UK.He works for the Secured loan web site loans fiesta for any type of loans in uk,secured loans,unsecured loans,debt consolidation loans please visit http://www.loansfiesta.co.uk
What is second mortgage? by Ajay Pats
What is a second mortgage?
A second mortgage is a loan that is secured by the home itself, and subordinate to the first mortgage. Any mortgage taken out against a home in addition to an already established mortgage automatically becomes a second mortgage.
As the name implies, second mortgages are secondary to first mortgages. This means if the homeowner is forced into foreclosure, the second mortgage holder will receive no proceeds from the sale of the home until the first mortgage has been completely repaid.
Characteristics of a typical second mortgage: Since the lender's risk is higher, second mortgage loans carry a higher interest rate than first mortgage loans. Second mortgages are typically shorter in duration (usually 15 years or less). A second mortgage may require a "balloon" payment at the end of the repayment period. This one is a biggie: the interest paid on a second mortgage is tax deductible in most circumstances!
Primary types of second mortgages:
Home equity loan - This is the traditional type of second mortgage. There is a one-time disbursement of the loan funds (in a single check) followed by a period of regular monthly payments and a fixed interest rate.
Home equity loans are often used to consolidate debts, remodel the home, fund a college education, purchase a big ticket item such as an RV, or most anything that requires a large amount of cash. Line of credit - This type of second mortgage is very different from a home equity loan. With a line of credit, you don't receive a large check for the full amount up front. You may never even borrow any actual money from it at all!
The interest and payment on a line of credit second mortgage can and does change periodically. The interest is typically tied to the prime rate. The actual interest rate will be the prime rate + a certain number of percentage points.
For example, your loan specifies that you will pay the prime rate + 5%. If the prime rate is currently 6.5%, the interest rate on your loan will be 11.5%. The interest rates will be evaluated periodically, and if the prime rate has changed, your interest rate will change along with it. Of course your monthly payment will also change accordingly.
A line of credit second mortgage is just that: an amount of money that you can borrow at a future date as needed. This amount is available to you all at once or in several small disbursements spread over many years.
For example, you apply for and get approved for a $50,000 line of credit (secured by a second mortgage on your home). You can borrow the entire $50,000 at one time.
Alternatively, you can wait a few months and borrow $20,000 for a new car. A few months later you can borrow $6,000 to add a room to your house. Later still, you can borrow another $3,000 to pay off a credit card bill.
So far you will have borrowed $29,000, meaning that you have $21,000 left on your line of credit that you can borrow later if you need to.
Conclusion
Second mortgages allow homeowners to tap the equity in their homes to purchase expensive items, pay of debts, or most anything else.
Home equity loans are usually used to fund a present need while lines of credit are often established for use at some time in the future.
It is very important that you use a second mortgage wisely because if you get into financial trouble you can potentially lose your home. But if used properly, a second mortgage can help you enjoy a better lifestyle, now and in the future
About the Author
Ajay Pats is a professional manager.He manages real estate broking site "Real estate broker" http://realestatebroker.nexuswebs.net/realestatebroker/index.html
community for home based business entrepreneurs "Venturecon/Home business opportunities"(http://groups.msn.com/venturecon) and inspirational ezine "Discover secrets of happy and prosperous life"(http://www.topica.com/lists/venturemall).
Home Equity Loans - 5 Useful Application Tips by John Ross
Obtaining a home equity loan does not have to be a major ordeal. Unlike your first mortgage, you are already in the home, and usually time is not such a major factor. You can close the loan at your own leisure, and take your time researching the different options available to you. Below you will find five tips that will help you make the process as painless as possible. Remember that your best defense is a good offense, so understand the process and everything that is involved. Don't let your lender pressure you into something that you don't understand.
1. Get pre-approved! This is something that I would recommend for a first or second mortgage. The process will vary depending on your lender, but you can choose to get pre-approved or pre-qualified. The pre-qualification process allows both you and the lender to review your current financial situation. The lender will then determine how much you can probably borrow. There is no obligation and you are not locked into anything. Pre-approval goes a step further and is a more formal process. You will actually fill out an application, and a credit check will be run. The lender will then issue you a letter outlining the amount that you can borrow. You can then use this to expedite your loan, once you are ready to close.
2. Get your home appraised. When obtaining a home equity loan, the critical part of the puzzle is how much your home is worth. Don't be fooled into thinking that an appraisal is not necessary. Home values can fluctuate depending on the economy and your own city demographics. Any improvements that you have added to the home since its purchase can also increase this value. So find out at the very beginning how much your home is actually worth. This will help give you a ballpark figure of how much you can actually borrow.
3. Prepare yourself emotionally. A home equity loan seems like a simple way to get needed funds. But, it is important to remember that you have something major on the line with this type of loan. Your home! If you fail to repay your home equity loan, they could take your home. So, it is important that you discuss the process with everyone involved so they understand what this loan entails. Set up a budget for a few months prior to the closing, and set aside the extra monthly payment. You will also want to consider any life-changing events that may happen during the life of your loan. Are you planning on having a child? Changing jobs? Etc. All of these factors can alter your ability to repay your loan.
4. Do your homework. Knowledge is power. Make sure that you have all of the facts when it comes to choosing a lender and a mortgage program. If possible get information from several lenders, so that you can make an educated decision as to which one is the best for your particular situation.
5. Get your break from Uncle Sam! In most cases a home equity loan is tax deductible. So, make sure to keep all paperwork associated with your loan, including closing cost allocations. You may be able to deduct both interest and principal in some cases. Consult with your tax professional to find out how a home equity loan will affect your tax situation.
With a little bit of time and effort, you should have no trouble finding the right home equity product for your specific needs. By planning ahead and researching your options, you can rest assured that you made the best possible choice for you and your family.
About the Author
John Ross is a freelance author, providing tips and ideas relating to home equity loans. You can find more of his articles at: home equity loan company, online home equity loans, and fixed rate home equity loan.
Home Equity Line of Credit - Great for Remodeling Projects by Charles Essmeier
Many homeowners are lucky enough to find a house that represents exactly what they want in a home. They buy it, make the payments on it, and live more or less happily ever after. Others are not so fortunate. Some buyers who live in a pricey market may have to settle for less house than they need, hoping to find a solution to their lack of space later. A third group of buyers may find that their housing needs change over time, as their family size increases. What can be done in these situations?
A common solution to these problems is to add on to the house, often accomplished by converting a garage to a room, adding a room over the garage, or simply adding a room somewhere else on the property. For these projects, a home equity loan is a great source of financing. The home itself is used as collateral for the loan, and the addition actually increases the value of the house. As most of these projects involve a fixed cost, the payments can be structured at a fixed interest rate over a specific period of time. But what about the do-it-yourself project? What if the problem with the home isn't a lack of space, but a lack of taste on the part of previous owners? Is there a better financing choice in these situations?
If your problem is gold appliances, lime green carpet, and smiley face wallpaper, you may be looking at a remodeling project of indeterminate duration. For such a project, a better financing choice would be a home equity line of credit, or HELOC. A line of credit offers greater flexibility, both in interest rates and repayment terms, than a traditional line of credit. The loan amount is based on the amount of equity in the home, but the funds aren't dispersed all at once. Instead, the borrower is given a checkbook, a special credit card, or both and can use them to draw upon funds at his or her leisure. Payments only apply when money is actually borrowed, and the repayment plans can be arranged with both fixed and adjustable interest rates, depending on the lender. This is ideal financing for someone who has purchased a fixer-upper home that needs a variety of changes, repairs, or modifications. The credit card can easily be used to purchase paint, drapes, flooring, appliances or whatever the homeowner requires to make the home fit their needs.
If you just need to hire a contractor to add a gameroom to your home, a traditional home equity loan would work well. For ongoing projects with indefinite timeframes and budgets, a home equity line of credit may be the best choice.
About the Author
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation and credit counseling information and HomeEquityHelp.net, a site devoted to information on mortgages and home equity loans.
Home Equity Loan Line of Credit Vs. Other Conventional Loans
by John Ross
When it comes to getting money, you have two basic options. If you are a homeowner you can choose to take out a home equity line or credit (HELOC), or you can take out a conventional loan. Both of these products will provide you with the funds needed, but the similarities end there. With varying interest rates and repayment options, you have a wide array of choices. We will discuss the differences between these two options, and then decide on which one is best for the typical homeowner. Remember, that everyone's situation is different, so use your best judgment when choosing a loan product.
You may already be familiar with a traditional loan product. These are usually based on your credit rating and your ability to repay the loan. The lender will review your past tax returns, credit score, as well as your salary. They may also factor in your income potential in the near future, if you are currently enrolled in a higher education program or up for a promotion soon. The main benefit of such a loan is that you have little at stake if you fail to repay the loan. They may have the ability to garnish your wages or hurt your credit rating, but you will be able to keep your home. The main disadvantage to this type of loan is that you can expect to pay a much higher interest rate than that of a home equity loan. You may also find yourself unable to take out as much as you would with a HELOC.
A Home Equity Line of Credit is a completely different time of loan. The bank will determine the amount of equity that you currently have in your home (value of the home- amount of liens= equity). They will then allow you a credit line that is a percentage of your equity. You will likely receive checks or a bank card that will allow you to make withdrawals on your own schedule. You can borrow as little, or as much as you want as long as it is within your credit limit. You will then make monthly payments based on the balance of the loan. Most lines of credit will require a minimum payment to cover interest, but the actual payment amount is up to you. The process is very similar to that of a regular credit card, except that you have your home backing up your purchases. The main advantage to this type of loan is that you can usually enjoy a much lower interest rate, and pay as much or as little during the life of the loan. The main disadvantage is that if you fail to pay the balance off, you could lose your home. So it is important to only take out what you can repay.
Which one is better? It all depends on your personal situation. If you have had trouble in the past with credit cards and revolving credit, a HELOC could be a very dangerous thing. Maxing out your HELOC has a lot more at stake than maxing out a typical credit card. So it is important that you have your finances and budget in place, prior to taking out such a loan. If your credit is poor, a HELOC may give you options where a traditional loan would not. Bottom line; understand your situation and you should have no trouble deciding the right loan product for your needs.
About the Author
John Ross is a freelance author, providing tips and ideas relating to home equity loans. You can find more of his articles at: home equity loan company, online home equity loans, and fixed rate home equity loan.
Be Prepared With Your Home Equity Loan Checklist?
by Tim Gorman
A home equity loan can be an excellent way to obtain money in order to pay off high interest bills or consolidate your current debt into one monthly payment. A home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses. Additional benefits include a nice tax advantage and the possibility of an overall lower monthly payment. However before you decide that a home equity loan is right for you make sure you do your homework. Not all online lenders of home equity loans are the same which means there are ample opportunities to save a few more of your hard earned dollars.
The biggest obstacle to overcome is deciding on the appropriate online loan lender. Make the wrong choice here and it could come back to haunt you in the form of higher payments. I have compiled a small list of items to check for when searching for the best online loan lender. One item to be on the look out for is the annual percentage rate or (APR) as it's commonly known. This is the cost of credit on a yearly basis expressed as a percentage. This cost is based on the interest rate alone and will not take into effect other fees and charges such as closing costs.
Most home equity loans or lines of credit revolve around variable interest rates. In many cases lenders entice consumers with an offer to temporarily discount interest rate for home equity lines. This rate is unusually low and may last for only an introductory period, such as 6 months.
Typical information that a loan officer will ask you to provide include a checklist for "Full Document" loan approvals, 1 month of pay stubs from your employer, the previous 2 years worth of W2 forms, a mortgage coupon or copy of your monthly mortgage statement, your homeowners insurance policy information, the mortgage note on your current mortgage, your drivers license and social security card. Having these items handy will help speed up the loan approval process.
Remember those pesky closing costs when you first bought your house? Well there back in force when you apply for a home equity loan. They include but are not limited to the following: Up-front charges, such as one or more points (one point equals 1 percent of the credit limit), application fees, appraisal fees and closing costs, including fees for attorneys, title search, and mortgage preparation and filing; property and title insurance; and taxes.
Once recommendation before applying for a loan would be to have a plan in place describing how you intend to pay the loan back. Some plans set minimum payments that cover a portion of the principal plus accrued interest. Other plans may allow payment of interest alone during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that amount when the plan ends. You'll need to be aware of the possibility of a balloon payment. This means whatever your payment arrangements during the life of the plan--whether you pay some, a little, or none of the principal amount of the loan--when the plan ends you may have to pay the entire balance owed, all at once. Failure to complete the loan arrangement by making the balloon payment could result in the forfeiture of your house.
Finally the federal Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened.
These simple guidelines were meant to provide you some additional information with the hopes of making you more comfortable and aware of the issues involved when applying for a home equity loan.
About the Author
Timothy Gorman is a successful webmaster and publisher of Military-Loans-Online.com. He provides more free loan information that you can research in your pajamas and money saving loan quotes on all of your loan needs to include home equity loan information
Home Equity Loan Information - How to use One Wisely
by John Ross
Using a home equity loan to get out of debt or make improvements to your home is usually a smart move. You have earned the equity, so it only makes sense that you put it to good use. Usually this type of loan offers a lower interest rate than credit cards or traditional loans, so it is a wise move for many circumstances. Perhaps one of the smartest uses of a home equity loan is for home improvements. You can take a $10,000 dollar loan, put it towards a new kitchen, and then turn around and sell your home for a profit. There are a few tips to getting the most out of your home equity loan. Use your head and ask questions, and you should have no trouble making the right decision.
First, you need to do your homework. We cannot stress this enough! The more you know about the process and your lender, the better prepared you will be come closing time. Get quotes from several lenders, which will give you a bargaining chip when it comes time to secure a loan. If you have found other lenders that can offer you a better deal, use that to your advantage. Always get it in writing.
Second, understand what the market is doing at the moment. Research the current interest rates available as well as the government prime rate. This will help give you a picture of where the economy is headed. Understanding the value of your neighborhood will also come into play during the process. For instance, if a golf course or park is in the process of being built, you may find that the value of your home will skyrocket once the feature is in place. Consider waiting until the construction is complete, to get top dollar for your home.
Lastly, know where you are going in the next 10 years. Sure, you may be able to swing the second mortgage now, but where will you be in 10 years. While nothing is ever certain, there are a few life altering events that could drastically change your finances. These include:
1.A spouse changing jobs or deciding to quit working to stay home with children
2.A spouse or child attending college
3.The birth or adoption of a child
4.Illness or death in the family
So make sure to discuss your current situation with your friends and loved ones. If you plan on having another child or moving to one income, you may be better off waiting for a while. On the same note, if you or your spouse will graduate college or receive a promotion, you can probably go ahead with the loan.
When the time comes to decide on a loan product, do not get pressured into signing something that you don't understand. Even if the lender says that the document is "standard" read through it cover to cover before signing. The final piece of advice for you would be to not take more than you need. Let's say that you have about $5,000 in home repairs that need to be done. Even if the lender says that you can borrow $30,000 dollars, you shouldn't do it. Borrow only what you need. That way, you can be sure to repay the loan in a timely fashion. Put any excess money into a savings or money market, so that you have a cushion should another emergency arise.
John Ross is a freelance author, providing tips and ideas relating to home equity loans. You can find more of his articles at: home equity loan company, online home equity loans, and fixed rate home equity loan.
Business Funding by Monte Zwang
Every business needs money at one time or another. The process of obtaining financing can be daunting and the chances of success limited if it is approached in a disorganized or haphazard way. Lenders are conservative critters; however it is important to understand that it is their job to lend money, and they are happy to do so if their risk is reasonable. The chances of obtaining a business loan are greatly enhanced if you adhere to the following procedure.
KNOW WHAT YOU NEED Understand how you intend to use business financing, how much funding you need and how you intend to repay the loan. Be able to communicate this clearly and confidently with prospective lenders.
UNDERSTAND YOUR CURRENT SITUATION If you are an existing business, are you profitable, and does your balance sheet have positive equity? What does your credit look like? Have a clear understanding of any existing liens and lien priority. Know your credit score and answers to derogatory credit issues (liens, judgments, slow pays, collection actions) before presenting your application. If there have been credit, profitability or equity issues in the past, present a credible argument as to why these issues have been resolved or how this loan will change this situation.
KNOW YOUR OPTIONS All lending is critiqued from a risk standpoint. Certain levels of risk will qualify for certain types of financing. The level of risk is reflected in the cost of the financing. The more secure a lender's money is, the less it costs you. Get creative. Financing takes many forms, and is available from a wide range of sources.
Standard (conventional) bank financing usually offers the best interest rates, however it is the most difficult to qualify for. These loans appear as a long-term liability on the business balance sheet. Conventional loans are available through banks and other lending institutions and can be guaranteed in whole or part by the SBA.
Revolving Lines of Credit are another form of business financing. This type of loan is secured by accounts receivable or inventory and is available from a bank or an Asset Based Lender. Credit cards are a form of revolving line of credit. An Asset-Based Line of Credit (ABL) is considered alternative financing and is available to borrowers who are too highly leveraged for a bank.
Real Property, Equipment Leases and Notes are another form of business financing. In these contracts the collateral for the loan is the property or equipment itself. When there is no outstanding balance owed on the asset, the property or equipment could be used in a Sale-Leaseback transaction. Here, the asset is sold to the lender for cash, and the borrower leases the property from the lender until the loan is paid.
Landlords can be a source of financing. It is not uncommon for a landlord to contribute dollars or rent concessions to the development of a tenant's space. For this loan, the landlord may require a Percentage of Gross Sales Clause in the lease as repayment. Extended vendor terms for purchase of product may provide short-term operating capital loans.
In the event that additional credit strength is required, loan guarantors or borrowing someone's credit may help the borrower qualify for less expensive financing. Be flexible. Your final package may be comprised of several lending solutions
PRESENT A CLEAR AND UNDERSTANDABLE PROPOSAL Lenders need to know who you are personally, professionally and financially. The lender needs to evaluate Income Tax returns (Corporate and Personal), financial statements (income statement and balance sheet) and a cash flow projection. The balance sheet has to look a specific way. The Current Ratio should be at least 1:1, and the Debt to Equity Ratio should be at least 4:1. Be specific as to how the money is going to be used and how it will be paid back. Lenders want to know what is securing their debt. Lenders evaluate the quality of the collateral, and want to insure that it is adequate to secure the debt in case of default.
A secondary source of repayment is required prior to granting standard financing. The personal guarantee of the borrower is often required. In some situations, a lender may seek secondary collateral. Secondary collateral is simply some other asset in which you have equity or ownership, i.e. equipment, property, inventory, notes. Business funding is not difficult if the borrower is creative and realistic. Know how much money you need and how you are going to use it. Be prepared to defend your needs and anticipate the lender's questions. In the event that a lender cannot grant your request, perhaps it is the way a loan is packaged. Find a lender who is willing to make recommendations that will help you find financing. A good lender will tell you quickly if they can help you or not. If an intelligent and organized package is presented, a timely response is warranted
About the Author
-Written by Monte Zwang of Steele Development Corporation, a consulting firm specializing in business development and financial strategies. You can reach Steele Development by calling 206.878.9666 or online at www.Steeledevelopment.com.
No Income Verification Home Equity Loan by Levetta Rivera
A no income verification home equity loan is a second mortgage loan that does not require you to provide income documentation to qualify for the loan. This type of loan is great for homeowners who need a home equity loan but have hard to document income.
The majority of borrowers with hard to document income are either self-employed or commission based employees. Consumers who fall under these categories may have high income but have a lot of business related deductions that they write off on their taxes. This is good on the one hand as it reduces the taxable income and thus the amount of taxes owed, however, when it comes to getting a home loan it can hurt as most lenders use the average of your last 2 years taxable net income (the amount left after all of your deductions) to determine your income figure for qualifying purposes. This may cause you to have a debt to income ratio problem if you have a high debt load and thus keep you from qualifying for the loan. With a no income verification home equity loan, however, your gross income can be used for qualifying purposes as opposed to the net income.
In order to qualify for a no income verification home equity loan you will, in most cases, need good credit and a high credit score. Expect to pay a higher rate for this type of loan as opposed to a traditional loan in which you have to document your income. Also, even though a no income verification loan does not require you to document your income, some lenders may require that you have a certain dollar value of assets on hand which must be verified. Not all lenders have this requirement though - some lenders offer a program called NINA which stands for "no income no assets" meaning you do not have to document either. Loan guidelines and rates vary from lender to lender so it is a good idea to shop around to increase your chances of getting the best deal available to you.
For more information on no income verification home equity loans, or to compare rates and programs of home equity loan lenders visit http://www.equityloansource.com
About the Author
Levetta Rivera is a successful mortgage broker and publisher of the following financial websites: http://www.equityloansource.com and http://www.militaryvaloan.com
Mortgage Cycling - Brilliant or Risky
by George Burks
With mortgage rates hovering around 20-year lows, competition in the mortgage industry is fierce. It seems like every day a new mortgage loan strategy comes out that is suppose to be the best thing since sliced bread. Whether it's a mortgage with no closing costs or an interest only mortgage, everyone is claiming they can save you a ton of money. Now someone has come out with something called Mortgage Cycling. Mortgage Cycling could save you thousands of dollars or it could cost you your home.
Mortgage cycling is a program that advertises itself as a method to payoff your mortgage in 10 years or less without making biweekly mortgage payments or changing your current mortgage. Does mortgage cycling work as advertised? The answer is unequivocally yes - with a few caveats. I'm going to let you in on the secret to mortgage cycling.
Mortgage cycling is based on making huge lump sum principal payments every 6-10 months. What this means is mortgage cycling works well for those who have at least a few hundred dollars in extra cash at the end of each month. The problem is most people don't have that kind of cash available.
For most people, Mortgage Cycling relies on using a Home Equity Line of Credit to make huge lump sum payments against their original mortgage principal balance. When you take out a home equity line of credit, you pay for many of the same expenses as when you financed your original mortgage such as an application fee, title search, appraisal, attorney fees, and points. You also may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. Home Equity Line of Credit interest rates are also higher than a typical mortgage loan interest rate.
While Mortgage Cycling does have some additional costs for most people, that is not what makes this mortgage reduction strategy risky. If you use a Home Equity Line of Credit and money gets tight, you could lose your home. Home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. And if you sell your home, most lines of credit require you to pay off your credit line at that time.
Prepaying your mortgage is smart. You can save tens of thousands of dollars in mortgage interest. For most people, mortgage cycling is risky way to payoff a mortgage. Be sure and look at your all of your alternatives before choosing Mortgage Cycling as a mortgage reduction strategy.
Copyright 2004 My Big Fat Mortgage. You may freely reprint this information on your website provided the following caption remains intact.
"This information courtesy of http://www.mybigfatmortgage.net "
About the Author
George Burks works with small business and homeowners to reduce mortgage interest expense via http://www.mybigfatmortgage.net
Home Equity Loans by Levetta Rivera
A home equity loan allows you to cash-in on the equity you have built-up in your home. The funds you receive can be used for debt consolidation, home improvement, college education, investments or any purpose. With a home equity loan your home is used as collateral to secure the loan. If you default on the payment you can lose your home so it is important to insure that you can afford to take out the loan before you sign on the dotted line!
Many homeowners get a home equity loan to consolidate bills. This can be a great strategy if you are overburdened with high interest credit card and/or consumer loan debt. A home equity loan can usually be obtained at a lower rate and all or a portion of the interest you pay on the loan may be tax deductible. If you are considering a home equity loan to consolidate your debt it will be wise to cut up your credit cards and close out the accounts. The last thing you want is to take cash-out of your home and end up back where you started from because you did not have the discipline to stop using your credit cards!
A home equity loan can also be a great source for obtaining cash to make home improvements. Next to debt consolidation, home improvements are the 2nd most widely used reason that consumers obtain home equity loans. Depending on what kind of home improvements you are making, it can increase the value of your home which may help to justify the added monthly payment expense you incur when you obtain a home equity loan.
A home equity loan can either be in the form of a fixed-rate loan or an adjustable-rate line of credit. With a fixed-rate home equity loan you receive all of your money in one lump sum and the amount of your monthly payment is the same for the duration of the loan term. With an adjustable-rate home equity line of credit you are approved for a credit line amount in which you can draw from as needed. In most cases you will only pay interest on the outstanding amount and your interest rate is subject to change. As such your monthly payments may vary depending on the outstanding loan amount and interest rate in any given month.
There are many home equity loan lenders online who will lend to people with good or bad credit. You may want to compare the rates and programs of several lenders before making your decision to increase your chance of getting the best possible deal. Also, consult with your tax advisor to see how much of your home equity loan interest will be tax deductible.
About the Author
Levetta Rivera is a successful mortgage broker, author and publisher of the following web sites: http://www.equityloansource.com http://www.badcreditloanshop.com
Ten Ways Start-ups Use Venture Leases And Loans To Generate Millions
by George A. Parker
The rise of venture leasing and lending has created an opportunity for sophisticated entrepreneurs to gain a competitive advantage. Savvy entrepreneurs are using venture leases and loans to generate millions of dollars for shareholders by leveraging existing venture capital. They have discovered ways to use this flexible financing as a tool to build enterprise value between equity rounds and to leapfrog less sophisticated competitors.
Venture leases and loans are usually asset-based, financing arrangements. These financings are available to qualified pre-profit, early-stage companies funded by venture capital investors. Start-ups need equipment and working capital to help them execute their business plans and to reach profitability. Venture lenders and lessors provide financing to these firms to help them acquire computers, lab and test equipment, production equipment, phone systems and other needed business equipment. These specialty financing firms may also provide financing for working capital in the form of accounts receivable and/or inventory loans. Start-ups that qualify usually have promising business prospects, well-defined business plans and have raised more than $ 5 million in venture capital from reputable venture capitalists.
How are these savvy entrepreneurs using venture leases and loans to boost shareholder value and to gain an edge on the competition? Here are some of the ways:
1. To stretch equity capital and to increase shareholder value between equity rounds. By using venture leases and loans, entrepreneurs can forestall going out for more equity while they continue to build and increase the value of their companies.
2.Use of loans and leases instead of internal cash helps to stem negative cash flow. Most start-ups are faced with negative cash flow until revenues build sufficiently to cover costs. Using limited internal cash for equipment purchases, to invest in inventory or for accounts receivable is not wise, if there are better options.
3.To protect working capital. Purchases of intermediate-term assets with internal cash will remove those funds from working capital. Use of venture leases and loans helps to keep the pressure off of working capital as the cost of these assets gets spread over an extended period.
4.To supplement other capital sources. Venture leases and loans supplement equity capital, mortgage financing and other financing available to start-ups.
5.To liberate cash from equipment, accounts receivable and inventory already financed internally. By doing a sale-leaseback, the start-up can liberate cash from equipment already owned. Likewise, the start-up can finance inventory and accounts receivable that have been funded internally by using a venture loan.
6.To bridge-finance equity transactions. Occasionally, start-ups are able to obtain short-term loans to bridge upcoming equity transactions. These loans are usually well secured by all-asset liens against these companies and are generally available for short time frames. Most venture lenders who provide this type of financing require equity kickers in the form of warrants to purchase stock in the start-ups or stock issued directly to them by the start-ups.
7.To hedge against rapidly depreciating equipment. Venture leases can be structured as fair-market-value leases. These leases usually allow the lessees to renew the leases at fair-market-value renewal rates, to purchase the equipment at fair-market-value purchase prices, or to return the equipment to the lessors at the end of the leases. The return option allows the start-ups to conveniently dispose of obsolete or unneeded equipment.
8.To replace venture capital. Start-ups are using loans in the form of subordinate debt as a substitute for additional equity rounds. These loans can be collateralized or unsecured and can be used for many of the same purposes as equity funding - to continue product development, to add key personnel, to expand marketing and to support sales efforts. Venture lenders generally charge a premium rate for these loans and require sizeable equity kickers in the form of warrants or ownership shares in the start-ups. These loans are