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A home equity loan is a loan that uses your home as collateral. Your home equity is the part of your home that you actually own and this is the guarantee for your loan.
Home equity loans may not be the best type of loan to get in a volatile market since they are tied to prime rate and could go up very quickly.
There are basically two types of home equity loans, HELOAN and HELOC. HELOAN has a fixed interest rate. The borrower usually receives a check for the entire loan amount immediately after closing (technically, three days after closing). The monthly payment, consisting principal and interest, is fixed for the entire loan term. HELOC is a line of credit, much like the line of credit your credit card issuing bank extends to you, with your home as the collateral. The borrower may make withdrawals and repayments as often as needed, up to the credit limit. The interest rate is adjustable, usually pegged to a certain index, such as the Prime Rate published in the Wall Street Journal. Monthly payments vary depending on the outstanding balance and interest rate. Required payment consists only of the interest charge on the amount owed for the preceding month. Repayment of the principle is not required until the second half of the loan term.
This loan is ideal for those who prefer the budgeting ease of fixed payments.
The factor that determine your HELOC interest rate you get is the margin you receive plus the current prime rate. The margin you get will also affect your rate however this number will not change like prime. A few of the factors that determine the margin is the combined loan to value of your current 1st mortgage and proposed 2nd, desired HELOC line amount and your mid credit score.
Some lenders are now offering no-closing-cost home equity lines of credit (HELOC), Now those “house poor” homeowners may now have the equity, which they have been putting half of their paychecks in to build, work for them for a change. And No Closing Cost? Hey, that means no title fees, no appraisal fees, no recording fees.
Home Equity Line of Credit is abbreviated as HELOC. This refers to a loan in which the lender agrees to lend a maximum amount within an agreed time period. A Home Equity Line of Credit in many ways is similar to a credit card. At closing you are assigned a specified credit limit that you may borrow up to (this is not a check). A draw period usually lasts anywhere from 5 to 25 years and allows you to borrow HELOC funds whenever you feel the need; you’re only required to pay back the amount you use plus interest.
A Home Equity Loan is a loan secured by the equity in your home and provides a potential tax deduction. You can use the equity you’ve built in your home for any purpose—consolidating debt, purchasing a car, installing a pool or paying for your child’s college education.
Prime rate has changed drastically lately and those that had great HELOC’s a few years ago are now paying MUCH higher rates. Your mortgage broker can compare the different options for you!
It is also possible to get a HELOC in the FIRST LIEN position. Before people just though of a HELOC as a “2nd Lien” loan, but that is not the case.
If your equity is sitting in your house it’s not making money for you. You can take out a loan for the equity or a portion of the equity in your home and invest in a growth fund and accumulate the funds to pay off your house faster than if you just paid down on your one mortgage. You equity it’s self doesn’t have value until you use it. And your interest is tax deductible.
Use a home equity loan for major purchases such as a new car, boat or motor home. The interest rates and payment amounts are sometimes much more appealing than a regular line of credit or loan.
HELOC or Home Equity Line of Credit mortgages are very often used as the 20% second mortgage component of an 80/20 style 100% financing deal.
Most home equity lines use the prime rate as a base for setting interest rates. For example, you hear lenders describe rates as prime + zero or prime + 1. This means the borrower will pay monthly interest according to the Prime Rate (lets use an example prime rate of 5.00%) plus a margin. In this case, prime + zero would equal an interest rate of 5.00%, or in the case of prime + one it would be 6.00%. Additionally, most home equity lines have interest only payments.
Is your rate too high? Get a rate quote on a Denver Mortgage Loan now!Comments
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“There are basically two types of home equity loans, HELOAN and HELOC.”
There is now no question that the HELOC is by far the superior of the two options. It is the only one that can be used as an “interest cancellation” vehicle. With it, a homeowner now has the capability to accelerate home equity and payoff what is most likely their biggest debt — their home mortgage.
Remember a home is not an asset until it has been paid off — it’s a liability.
Today’s Real Estate market means that folks can no longer count on appreciation to build home equity. Those who realize that they need to pay down their current mortgage debt are looking for alternate ways to aggressively (yet safely) build equity.
And they’ve discovered a perfect online system to do that; they can focus on their wealth accumulation goals while accelerating their equity simply by using a Home Equity Line of Credit to ‘power’ the Money Merge Account™ financial solutions program.
A typical 30 year loan (of whatever type) can be paid down in 1/3 to 1/2 the time — it’s a great way to save *huge* amounts of income by eliminating a mortgage amortization front-end interest load. (On a million-plus dollar home, I’ve personally seen where the Money Merge Account™ program will save the homeowner $750,000 in interest charges!)
And the best thing – homeowners don’t have to refinance their existing mortgage or, in most cases, make any adjustments to their lifestyle.
It is unfortunate that most of us were never taught to follow three essential principles: (1) Avoid paying interest, whenever possible, (2) Use other people’s money, whenever possible and (3) Find and use a financial system that will guide you, especially if you have the tendency to go off-track. The Money Merge Account™ software and the program’s counselors use these principles to keep each homeowner focused on their wealth accumulation goals.
I’d be happy to provide further details…