My OperaA Few Fast Home Equity Loan Information
Tuesday, July 13, 2010 10:19:25 PM
One should pause for a moment and consider some things before jumping on a fast home equity loan. The first consideration for a loan should be to understand its purpose. Second consideration is to understand the risks and fees in obtaining another loan. Some information that a mortgage broker might fail to present is the fact that by extracting equity from your home one could face a loss if the home price declines below the loans outstanding.
However, home equity loans do have some advantages. One advantage is the low interest payments when compared to unsecured loans such as credit cards. The interest payments will, however, be higher than a primary mortgage because of the higher risk profile associated with an increase in borrowing. For this reason, it behooves the borrower to shop around for a good rate. Another advantage is that the interest payments are tax deductible.
There are different categories of home equity loans. The basic home equity loan is comparable to a term loan. The interest payments are fixed for a fixed maturity. The benefit here is that the borrower receives a lump sum payment up front for his or her needs, such as home improvements.
A home equity line of credit is another kind of loan that behaves like a revolver or credit card. Here the equity in the home is used as a line of credit. No interest is charged until there is an actual withdrawal on the line of credit. The type of interest rate is usually a floating rate and there can be extra fees depending the loan structure.
Another type of home equity loans is the cash out refinancing. This is the equivalent of taking out another mortgage greater than the current mortgage and using the difference as the home equity loan. For example, if you had a $500,000 mortgage on your home and your home price appreciated to $750,000. Then, you could take out a mortgage up to $750,000, repay the initial half a million mortgage and the remainder would be considered a home equity loan.
One concept to understand is that loans are limited by a loan to value ratio. In current times, post the mortgage crisis, lender have become more conservative. It is likely that the highest amount of loan one can receive would be limited to eighty percent of the value of the home. All the loans, first mortgage and home equity loans, would be considered collectively in determining the loan to value.
Other things to consider are the term of the loan. Generally, it is always wise to take the lowest term available that fits one's monthly budget. The reason being, it lowers the overall interest rate expense because the longer it takes to pay the money back the longer the borrower has to continue to pay interest. Another topic to consider is that interest rates are higher for home equity loans than first mortgages because of the added risk. Therefore, one should not assume the same payment schedule as they currently have with their primary mortgage.
Additional costs to consider, aside from closing costs, are title search, attorney fees, and appraisal fees. Borrowing money is not free. Furthermore, one should select the type of home equity loan that fits their needs. Debt consolidation loans are more suitable for home equity loans versus a home equity line of credit because the amount is known and one can budget in a fixed monthly payment. For fluid situations, such as college tuition costs, a home equity line of credit would be more appropriate. One should always take the time to do some basic cost benefit analysis.
Are you behind on your bills? Get a fast home equity loan and get your bills paid off. You may qualify for a fixed home equity loan and consolidate your debt!This article, the best article ever, kindly provided by UberArticles.com
