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:: HOME :: CREDIT CARDS :: LONG DISTANCE :: INTERNET SERVICE :: LOANS · Main Page · Auto Loans · Home Equity Loans · New Mortgage Loans · Refinance Loans · Student Loans  Loan Consolidation New Student Loans Tips and Advice Calculators· Lines of Credit · Debt Consolidation · Credit Report & Score · Tips & Advice - New! · Calculators - New! · Loan Glossary · Loan FAQ · Info & Resources :: CELL PHONES :: INSURANCE :: ONLINE BANKING :: KNOWLEDGE :: MORE |
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Loan Tips and Advice Center Topic: Home Equity Loans See the subtopics menu for tips and advice about home equity loans. For additional information about loans, see the topic list directly below.
 Home Equity Loans ExplainedWhat is a home equity loan? Home equity loans are commonly advertised on television as being easily attainable and inexpensive. If you are unfamiliar with this type of loan, however, you may find yourself wondering what exactly it is and whether or not it is right for you. The premise is actually quite simple. The equity in your home is the amount your home is worth minus any money owed on the home. An equity loan cashes in the available equity and uses your home as collateral for the loan. Home equity loans can be used for just about anything: Debt consolidation, home improvement projects, or perhaps even funding a vacation or other event. Borrowers like home equity loans because the interest paid on the loan is sometimes tax deductible, and lenders like home equity loans because borrowers are statistically less likely to default if the loan is attached to their home. The downside of this is that a default on a home equity loan can result in a foreclosure, even if the first mortgage is paid promptly. For this reason, a home equity loan is not something that should be utilized just because the money is there and is available. Like all loans, home equity loands must be utilized wisely. The equity in your home should be seen as more of a safety net than as free money. ^ Back to top Home Equity Loan vs. Line of CreditWhat is the difference between a home equity loan and a home equity line of credit? If you want to utilize the equity available in your home you have a couple of options: Home equity loans and home equity lines of credit. Most lenders offer both of these options. A home equity loan is a loan that offers you one lump sum that is repaid on a monthly basis by the borrower. Home equity loans are often best for those who need a specific amount of money at one time. A home equity line of credit is a revolving credit line that is based on the amount of equity within the home. Home equity lines of credit are often best for those who seek more flexibility as far as accessing the funds. Home equity loans are a good idea if you know the exact amount of money you need and have no further need after the loan is paid off. Home equity lines of credit are good for people who either want to have the money available, or who would like the flexibility of managing the disbursement of the funds (such as with multiple contractors on a home improvement project). Also, those who prefer a stable repayment plan may opt for a home equity loan, as those types of loans often come with fixed interest rates. Home equity lines of credit, on the other hand, often come with variable interest rates, so repayment may not be as stable or predictable. ^ Back to top Home Equity Loan Interest RatesAre home equity loan interest rates lower than other types of loans? Home equity loans interest rates are often fairly low because the collateral is your home, and therefore you are much less likely to default on a home equity loan than you would be with a personal loan or a car loan. Some homeowners use home equity loans instead of other loans simply because the interest rates can be so much lower than other types of loans. It isn't uncommon for people to secure an equity loan to use for the purchase of a car. They use a home equity loan instead of a car loan because not only is the interest rate lower, but the interest paid on the loan is tax deductible in some instances. Remember that if you get a home equity loan with an adjustable (variable) rate you may wind up paying a lot more than you originally anticipated. However, if luck is on your side and interest rates stay low for the duration of the loan then it can be a really great deal. ^ Back to top Fixed Rate Home Equity LoansWhat is a fixed rate equity loan? A fixed rate home equity loan is a loan secured by the equity in your home with an interest rate that does not change. Unlike an adjustable rate equity loan or equity line of credit, a fixed rate equity loan had a monthly payment which is predictable and consistent. This means that a sudden rise in interest rates does not effect your monthly payment when you have a fixed rate. Although fixed rate equity loans can sometimes have a higher initial interest rate than an adjustable rate equity loan, many borrowers take solace in the fact that the interest rate will not change during the life of the loan. Unless you have some inside knowledge about a future interest rate plummet - or if you embrace the risk associated with an adjustable rate loan – it is generally advisable to select a fixed rate equity loan so you don't wind up in a situation where your monthly payment creeps up every adjustment period until your payment is much larger than it started out as. You should discuss your loan options with one of your lender's consultants and figure out is a fixed rate is the best option for you. ^ Back to top Use Your EquityWhat should I use a home equity loan for? Homeowners are certainly not strangers to unexpected expenses. You never really know when the furnace is going to break or the roof is going to start leaking. Sometimes it's difficult to keep a well-padded emergency fund in a savings account, but expenses continue nonetheless. If you find yourself in a situation where you have a necessary expense – but don't have the money in the bank to pay for it – you may want to consider looking into a home equity mortgage loan. Home equity loans are ideal for home repairs and home improvements because the loan is secured by the equity in your home. Instead of ignoring necessary repairs and allowing your home to decline in value you can cash in on your equity and make all the repairs you need. A home equity loan should not be used frivolously, but it's great to know that the money is there in case you need it. Instead of putting costly repairs onto a credit card consider an equity loan; the interest rates and payments will probably be lower and you may be able to deduct some of the interest you pay on your tax returns. Some people even make use of home equity loans to consolidate their outstanding debt into one more manageable monthly payment. See our home equity debt consolidation calculator to see if this option might be right for your specific financial decision. ^ Back to top Home Equity Loans With Bad CreditCan homeowners with bad credit get equity loans? Not all homeowners have excellent credit, so when the time comes to get a loan for debt consolidation, home improvement or some other purpose, many people turn home to equity loans. Some lenders deny equity loan applications based on bad credit regardless of the amount of equity within the home. Luckily for homeowners with bad credit, there are plenty of lenders out there that are willing to approve equity loans for people with low credit scores. Applicants must take care to ensure they are not signing up for an equity loan riddled with excessive fees and terms so rigid that defaulting on the loan becomes all too easy. As with most "bad credit" loans, home equity loans given to those with less-than-perfect credit often come with higher-than-average interest rates and other miscellaneous fees. Missing payments on an equity loan can be grounds for foreclosure regardless of the status of the first mortgage. A home equity loan can definitely be a viable option for a homeowner with bad credit who need access to cash. But homeowners must use these newfound funds wisely to avoid potential financial trouble down the road. ^ Back to top
Should you refinance your existing mortgage? This calculator can help you that find out. Enter the specifics about your current mortgage, along with your current appraised value, new loan term, new rate and closing costs. Together, this can determine how much refinancing might save you overall. · Calculate how much you could save in interest
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