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Home Equity Loans - There's Gold In That There House
To paraphrase an old familiar quote that goes "there's gold in
them there hills, you could say, there's gold in that house. As
Martha Stewart would say, "it's a good thing".
A home equity loan can be a very good thing if you formulate a
plan and stick to it. Home equity loans are becoming much more
common and most banking companies have specific re-financing
plans available for today's consumer.
Read on and you will see that a home equity loan used for the
proper purpose and managed correctly can indeed be a "good
thing".
A Home Equity Loan - Just what is it?Types Of Home
Equity Loans HEL or HELOC?
There are two types of home equity loans. A regular home
equity loan and the home equity line of credit or HELOC. A
regular home equity loan is a fixed sum borrowed at a fixed rate
over a period of time. A HELOC allows the client to borrow
various sums up to a fixed amount over a period of time. A line
of credit works in a similar way as a credit card; you use it
when you need it. Different States set their own laws on limits
you can borrow against your house.
The Financial Plan - Making your home equity work for
you
For a home equity loan to work best for you, it's a good idea
to have a budget and a financial plan. Having a budget will help
you decide how big a loan you need and a financial plan will be
the map to accomplish your goals within that budget. Here are a
few suggestions on ways to use a home equity loan.
1. Home Improvements
You may want to build up the equity in your house by making home
improvements. The first and best place to visit is a home
improvement warehouse store. These stores, especially the large
ones have whole rooms set up and priced. Use caution however,
husbands and wives have been known to have gone into these rooms
for days and when they came out they were muttering "but I liked
the blue room best."
2. Debt Consolidation
Pay off all the nagging little balances that seem to have
accumulated on various store and gas cards in your wallet.
3. A holiday in the sun or snow!
It's a matter of interest, if you shop around; you may find a
couple of percentage points on a home equity loan that can make a
world of difference. Consider a holiday South of the border or
North to Canada.
Mexican or Caribbean destinations are very attractive during
the winter months but if skiing and winter activities is more to
your liking then consider Vancouver, Canada. Whistler, British
Columbia is one of the locations that will host the 2010 Winter
Olympics. Shop around for the best rates and dream on.
4. A retirement Savings plan
It's not an easy fact to accept but one day we will all need to
retire. Planning for retirement requires good financial decision
making. Many banking and financial companies offer free
retirement planning advice. Some home equity loans are designed
to be used for investment purposes. Talk to a trusted Financial
Planner before signing the dotted line on this idea.
Loan Terms - Points To Ponder
Now you have a plan and are ready to talk with a lending
company. You may want to do this on the Internet to save time and
maybe a few dollars. If that is the case then it is a must to
know these terms. Before you proceed to do some serious web
surfing here are a few you will want to become familiar with
before you consider a home equity loan. These points to ponder
are:
Equity
Equity is the appraised value or Fair Market Value of your home
less the outstanding mortgage balance.
Mortgage Broker
A mortgage broker is the "go between" whom you pay to negotiate
the best deal. This person has access to current financial
information and can be very important if financial savvy is not
your strong suit.
HELOC
A HELOC is a Home Equity Line Of Credit. This term is discussed
under types of home equity loans.
Debt Consolidation Loan
Over the years as you have paid off your home, you may have also
acquired a few credit cards along the line. These credit cards
include gas cards, store credit cards, and some bank credit
cards. The interest rates on these cards vary and you may find
that you are paying through the nose for the convenience of a
store credit card. That is where a home equity loan can be very
handy. You can borrow the amount you need to pay off each card
and make one payment each month. With current financing plans,
one payment at the end of the month is less than the minimum
payment that was required on each card. Once you have done this,
get out your scissors and cut up all of the cards except one bank
credit card for emergencies. Remember the plan!
Balloon Loan
This type of loan can be difficult. The first few payments are
low with low interest rates. The last payment however is exactly
as the name describes; a balloon. It is a very large payment at
the end of the repayment period. It is essential to stick to your
financial plan because in this case you may need another loan to
pay off the balloon amount.
Interest Rate
The periodic fee charged for a loan. This is expressed as a
percentage point and some financial institutions are offering
approximately 5.6% on a thirty year fixed $150,000.00 home equity
loan. The lower the interest rate the better the deal, just make
sure you aren't negotiating a balloon loan though.
Transaction Fee
Unfortunately no matter how good the deal on the loan you get,
there is no free ride. In the business of credit management
someone has to make money in order for home equity loans to
exist. There will be some type of transaction fee built into the
loan application. Lenders have costs and these costs are passed
along to the consumer as a transaction fee. Depending on the loan
company you decide to use, a transaction fee can be lower or
higher, so make sure you shop around.
FICO Score
A sliding scale based on a point score created by the Fair Isaac
Corporation. This score is used to determine a borrower's
behavior and potential risk factor.
Credit Rating
Using the point system based on the FICO score, a credit rating
can be anywhere from poor to excellent. With a good to excellent
FICO score, a person's credit rating can determine how much money
can be borrowed and what interest rate will be charged.
Re-Financing - Finding A Gold Mine In Your Home
Many people consider their home to be their castle but few
consider that they could be living on a potential gold mine. If
you have lived in your house for 10 years and have been making
payments, especially bi-monthly payments, you have built up a
considerable amount of equity. Pair that with a good FICO score
and there is indeed gold in that there house.
What's Your Fico?
Mortgage Brokers use a FICO scale to determine the amount of
money you can borrow against your home and at what interest rate
you can borrow this money. This number is between 300 - 850
points and showcases a person's credit history. This scale was
developed in California by the Fair Isaac Corporation, a global
decision management company. A credit rating of 700 points is
considered "good" and based on a $150,000.00 fixed thirty year
mortgage, your rate of interest would be 5.7 percent VS 9.3% if
your FICO score was below 600 points. Having a high FICO entitles
you to borrow more money at a better rate.
Improving Your Fico
You've taken the test, (which is available at most lenders
websites), and your score is not as stellar as you had hopped it
would be. There are a couple of ways to improve this score:
1. Pay all your bills on time.
2. Keep a small balance on one credit card to keep it
"active".
The FICO website gives you all the "who, what, where, when and
why" of the two above suggestions. You can read about the
rationale in great detail at that site.
Buyers Beware
With today's credit options and a good credit rating, you can
borrow a lot of money against your home. This ability if not used
responsibly and with a good solid financial plan can be ruinous.
Some borrowers have gotten over their head and ultimately had to
file for bankruptcy. So beware of potential risks.
Home Equity Loans - A Golden Opportunity
As you can see, a home equity loan is a great way to improve
your living space, go on a holiday, plan for retirement or pay
off some debts. With the right combination of a good FICO score
and proper planning, there really is gold in that there
house.
© 2005 http://www.home-loans-101.com
About the Author
Lillian Fuller is a talented and successful freelance writer for
hire providing tips and advice for consumers about personal
finances including mortgages, home equity loans,
credit reports, and more. Her numerous articles offer valuable
insight and informative views on many different topics.
MORE RESOURCES updated Thu. June / 08 / 2023
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RELATED MORTGAGE AND REFINANCING ARTICLES:
Where To Find The Best
Rates For Your Mortgage?
As with all of my articles this will be based on a scenario
in my home town. (Which may be similar to yours).
What Are Home Equity
Loans?
A home equity loan is simply borrowing on the difference of
the value of your home and the outstanding mortgage on the
house. Lets say, you have bought a home worth $50,000 some
time back, after making a down payment of $5,000.
Choosing The Right
Mortgage For You
This article will help you understand the differences
between a variety of mortgage options. There are many
different mortgage products offered by the various lending
institutions in Canada, so you may not know what features
to look for.
Bankruptcy and Buying a
Home
Filing bankruptcy is a stressful time in a person's life.
Along with discharging your debts and gaining a fresh
start, you may wonder if you will be able to buy a home
after a bankruptcy.
Poor Credit? Get a
Sub-Prime Mortgage Now, and Refinance to a Conventional
Mortgage Later
There are great mortgage loans for people with poor credit,
and yes, you can still save thousands of dollars. In order
to receive preferential treatment for mortgage
professionals, you'll need a credit score of 680 or better
(this is considered A credit).
Home Mortgages: Should
You Apply Now?
If you're thinking about applying for a new mortgage or
refinancing your current mortgage, you might want to take
action now. In its survey this week (the week of Aug.
Short-Term Interest
Rates on the Rise; Adjustable Rate Mortgage Holders Prepare
for Increase in Rate
Interest rates are on the rise and many home owners who
have adjustable rate mortgages may see increases in their
forthcoming annual adjustments. Federal Reserve Chairman
Alan Greenspan made it clear in 2004 that the Federal
Reserve would be increasing short-term interest rates at a
"measured pace.
Homeowner Loans - What's
Available?
It isn't difficult to get a homeowner loan if you own your
own home, hundreds of UK lenders will lend up to 95% Loan
to Value of your property and some as much as 125% Loan to
Value if you find you have little or no equity at
all. Homeowner loans are available to those that own or pay
a mortgage on their house, bungalow, flat or cottage.
Thinking About
Re-mortgaging? Read These Tips First
More and more of use are signing up for limited time low
interest rate mortgages and then switching to a different
mortgage when the low interest period expires.It's a great
way to save money and can, potentially, save you thousands
in repayments.
How to Utilize Your Cash
Investment in Your Home
Have you ever noticed how hard it can be to get to the
equity in your home?Recently I had a client come to my
office who had quite a bit of equity in their home. I'm not
talking about $50,000 or even $200k, I'm talking about over
$250k.
How to Find Cheap Home
Improvement Loans
If you have home improvements that you'd like to see done
but don't have the money to do them, you might want to
consider looking for cheap home improvement loans. These are
loans that are designed with the homeowner in mind, and
allow you to make the repairs and improvements that you
want but that you otherwise couldn't afford.
Ending Your Private
Mortgage Insurance Early
Private mortgage insurance, or PMI, is the safety net of
the lender. PMI benefits lenders because it guarantees
payment on the balance of loans not covered by the sale of
foreclosed properties.
High Risk Home Mortgage
Lenders Online
Online high risk home mortgage lenders specialize in
offering loans to people with adverse credit due to
bankruptcy or other financial problems. By analyzing online
quotes, you can find a reasonable mortgage loan even with
poor credit.
Buying A Home?
Reasons to Consider Financing Your New
Home Loan Online
Financing your new home loan online can save you time and
money. With information at your fingertips, you can quickly
educate yourself about the loan process and compare
mortgage lenders to find the best rates.
Flexible Mortgage
Tips
Outlined below are some useful flexible mortgage tips. The
most prominent addition in recent years to the mortgage
industry has been the flexible mortgage.
Reverse Mortgages: When
Is One Right For You?
How do you know if a reverse mortgage is right for you? The
answer depends on your current financial situation of
course.But other factors such as your medical condition and
lifestyle are important in determining whether or not a
reverse mortgage is your best choice compared to a home
equity loan, a line of credit, or just selling your home.
Tips On New York
Mortgage Refinance Loan
Many homeowners want to know if it worth taking a New York
mortgage refinance. How do you know if New York mortgage
refinancing makes sense in your case? Read on to understand
when you should refinance and how to go about doing it.
Is the Inverse Mortgage
a Scam? New Program Promises Mortgage Payoff inside of 5
Years
If a mortgage could be paid off in five years or less,
without it costing homeowners an extra cent, why wouldn't
every homeowner in America be doing it? Because they don't
know, or because they're too wise? Although the former may
be the case for many, I certainly hope the latter is the
answer for most. A real estate finance consultant company,
who shall remain nameless here, claims it has the secret to
paying off your mortgage in five years or less, without you
paying any more on your monthly payment or adding to the
principal mortgage of your real estate loan.
Find the Best Mortgage
Company
If you do not wish to commit to living in one place for at
least a few years, then owning a house is probably not for
you, at least not yet. With the transaction costs of buying
and selling a home, you may end up losing money if you sell
any sooner.
Choosing a Real Estate
Agent
Before you go looking at houses, you'll need to find a real
estate agent. Hiring a real estate agent takes a little bit
of time to do.
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