When looking for a home loan using equity as security or for a mortgage, you will really need to compare the options that are available to you so that you don’t end up on the losing end. First, get to know about the two different types:
• Fixed rate home equity loan
• Home equity lines of credit (HELOC)
The first loan is one that is fixed. What you need to understand is that when you compare home equity loan offers like these, you will see that the term of the home equity loan is fixed and not the rate. This can be either 10 years or 20 years.
The next thing to figure out is when you can get either of the two loans. There are a few cases and these include:
• You taking out fixed rate equity loan or a HELOC to help you consolidate a debt. This is usually a higher rate debt like credit cards that have high interest rates.
• You taking out fixed rate loan or a HELOC and use that loan as a down payment on a second home or another property that you would like to invest in.
• You getting a fixed rate loan using equity from your home or a HELOC that can be used as another mortgage which is added to the previous mortgage on a purchase that you made on a home or on refinancing.
These are also the reasons why you should make sure that a home loan using your equity as security is the right thing to do.
By: Elija James
Posts Tagged Using Equity
If you’ve been making regular payments on your mortgage, you’ll find that in addition to repaying your loan you’ve also been building up the equity in your home… and if you want, you can use this equity as a means to secure a loan for a variety of different purposes. A low interest home equity loan can be just the thing to pay for home improvements, debt consolidation, vacation planning, or most other expenses that you can think of. If you’re interested in applying for a low interest home equity loan but aren’t sure how to ensure that you’ll get the best interest rate that you’re eligible for, consider the following.
How Equity Works
Though it’s a popular subject in loan advertisements, many people aren’t sure exactly what equity is or how a low interest home equity loan actually works. Equity is actually a measure of how much money you’ve paid toward your outstanding mortgage, and is calculated as the value of your house minus the amount remaining on your mortgage. This gives you a representative figure of how much you’ve paid toward your house, or how much of it you actually “own”. This feature of equity figures largely into how it is used for a low interest home equity loan.
Equity as Collateral
When you apply for a low interest home equity loan, the lender is going to calculate the equity that you have and compare it to the amount that you wish to borrow. Equity works well as collateral, since it can be easily figured and it is very easy for lenders to process it. An equity loan gives the new lender a claim on your house, which would be settled after the mortgage is cleared should either lender be forced to take possession and place the house on the market to reclaim their money. Though this creates more risk than some individuals would prefer, using equity as collateral opens people of all credit ratings up to interest rates that they might not have been eligible for otherwise.
Lowering Interest Rates
Since equity is generally higher in value than many forms of collateral, lenders are much more likely to offer you a lower interest rate than they might with collateral of a lower value. This means that instead of having to settle for the interest rates that you’re used to getting, you might be able to get a rate much closer to those that individuals with excellent credit receive. If you have a low interest home equity loan, you might also find that loan payments are more manageable due to the lower amount that’s added on to each payment from the accrued interest.
Equity Loans and Bad Credit
A low interest home equity loan can be very beneficial to individuals with poor or bad credit, since it allows them to get a loan when many other lenders wouldn’t be willing to offer one as well as opening up interest rates that they probably haven’t been able to get in a while. Additionally, by making on-time payments to the lender these individuals can actually begin improving their credit score without trying. The payments are reported to the credit bureaus as being on time and in full, and these positive reports gradually begin to outweigh the negative reports that have dragged their credit down in the first place. As the negative reports begin to expire after 5 to 7 years, the positive reports will then begin to have an even larger influence.
By: Paul Rogers