When a Home Equity Loan is Good

Published December 3, 2007
[ From Lansing State Journal ]
Fearing a layoff? Prepare finances for jolt

John Waggoner
Gannett News Service

You can't help but notice the little signs at work that layoffs are coming. The closed-door meetings. The buzzards in your parking space.

The economy is slowing, and that means you need to be prepared. You need to make sure that your household can withstand the loss of income.

• Your first step: Make a rainy-day fund. Financial planners often recommend that you keep three to six months' worth of salary as an emergency fund. They're talking about the amount of money you need to pay your bills each month.
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Keep the cash in a money-market mutual fund or a bank money-market account. The average money fund yields just 4.2 percent, but you're not investing for the yield. You want access to your money whenever you need it.

• You also will need to reduce your expenses. Pay down your debts aggressively. Think of your debts as good debts and bad debts. Good debt is your mortgage, or any other loan that charges less than 6 percent in interest.

Bad debt is pretty much anything that charges more than 6 percent. A credit card balance that charges 18 percent interest? Bad debt.

• Consider taking out a home equity loan to get rid of your high-interest loans, if you don't have enough in savings to pay off the debt.

The catch: It's a lot easier to get a loan when you have a job. If you suspect you're going to be laid off, run to the loan office.

If you don't have a home equity loan available, cut up the card and stop making new charges on the account. Pay 5 percent of your balance this month. Pay the same amount each succeeding month.

• It could make sense to stop pouring money into your 401(k) plan and using it to pay down high-interest rate debt, said Kurt Brouwer, a Tiburon, Calif., financial planner. If your company matches your contribution, however, you should contribute at least enough to get the match.
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Real Estate Loans

The greatest American dream is to be able to acquire own home. Americans will do everything to realize this dream. When you finally realized this dream, you surely will not want to loose it.

However, people may loose this through foreclosure, especially if the consumer is unable to control their spending or in cases where the consumer is unable to meet his debt obligations.

Another reason why people loose their homes to foreclosure is when they acquire real estate loans.

In a real estate loan, you use your real estate property, most commonly your home, as collateral for the loan.

Loan collaterals are used to secure the loan. It is however reasonable that if you have a real estate property like your house and land, you can use this as loan collateral because you will be able to acquire loans with lower interest rates.

Lenders charges lower interest rates to real estate loans as compared to unsecured loans.

Another factor you may need to consider is the fact that if you already have enough equity in your home, you may use this equity to take out a real estate loan or a second mortgage on your home to pay-off the entire balance of your property.

You may also acquire real estate loans for other purposes.

In case of sickness, loss of job or other personal circumstances needing additional fund, it is easier to take out a real estate loan. Lenders easily approves real estate loan because they are sure to be able to get back their money whatever happens to the financial condition of their debtor.

It is therefore necessary that even if you have a real estate property, you need to be able to control your finances and avoid having to need real estate loans. The risks of foreclosure will never especially if you only spend within your means.

However, in extreme cases, the real estate loan will be able to help you. You only need to make sure that you will be able to pay your loans in order to avoid the risk of foreclosure.

Finally, if you will need a real estate loan, you may need to shop around for lending institution that are legitimate and charges reasonable interest. Additionally, you may need to read the conditions in the lending application to make sure that you understand it. This will ensure that you can meet all the condition and avoid not being able to recognize hidden conditions that will be too risky in your case.

For other information about real estate loans, and how you can protect yourself from unprofessional lending institutions, you may log on to the internet and find link and information on how to manage your debts and your financial condition

Home Equity Loans

4 Reasons You May Want To Refinance Your Mortgage Loan

Deciding to refinance your mortgage loan depends on different reasons for different people. It really is going to depend on your situation and knowing the reasons why you want to refinance. Let's look at 3 common reasons people refinance their current mortgage.

1. If you are paying too much every month for your mortgage it may be time to refinance. A drop in interest rates could mean big savings for you. If you have made your payments on time and have a good overall credit score refinancing at a lower mortgage rate could lower your monthly payment and help you have more money at the end of the month,

2. If you have built up some equity in your home and you need to access some cash refinancing your mortgage could be just the place to get it. If property values have increased since you took out your mortgage loan you are sitting on a pile of money that could come in handy.

Banks do not really care about what you want the money for. Common reasons to pull out some cash on the equity of your home could include paying for your daughters wedding, doing a home improvement, taking a vacation, or paying for college tuition.

All the bank wants to see is that you have a way to repay the loan and they are secured by the equity in your home when they do the loan.

3. If you have an adjustable rate mortgage that has crept up and is getting ready to roll into a high fixed rate this may be another reason to refinance. People take out an ARM to get a lower rate and to be able to qualify for a little bit more expensive home.

After a number of years the ARM will be ready to settle into a fixed rate loan. Depending on the fixed rate you may be able to do better by refinancing. Your mortgage loan professional can help you decide the best route for you to go if this is the case for you.

4. One other reason that people look at refinancing is to shorten the length of the loan. That is commonly done when you want to go from a 30-year loan to a 15-year loan.

If your income has gone up and you determine you want to stay in the home you have for many years to come then this makes sense. Paying off your loan early gives you the peace of mind of knowing you own your home.

These are 4 good reasons that you may want to refinance your mortgage loan. The important thing is to know "why" you want to do it and make sure it is best for your situation.

Using Your Home Equity for Home Improvement

Home Equity Loan

You want to add a deck to your home to enjoy your evenings outside with your family and friends. You have cash sitting in your bank or you have a few credit cards that you can tap into to finance your home improvement. What is the best option? Should you get a Home Equity Line of Credit? Making the right decision is based on knowing various pros and cons of different ways to finance your project and your current situation. Even if you have cash sitting in the bank, it may not always be the best option.

If you have cash at hand, it should be earning at least 5% in a savings account. If you are not earning 5% from your bank, dump them and go to a bank that will give you at least 5% on your money. Search the Internet and you will be able to find a few online savings accounts, offered by well known banks like Citibank, Emigrant bank or HSBC that will give you a 5% return on your deposit.

If your credit is good and the project is small, search for a credit card that will give you 0% interest rate for a year. Apply online and get approved instantly. Within a couple of weeks, you will get your card and you will be able to use it for your home improvement project. You can use the same technique for store credit cards, Master Card or Visa. When you get a loan on 0% interest rate, make sure that you don't miss a payment. To avoid missing a payment, use online payments offered by many banks for free or the online payment option of the credit card company. Using an online payment, setup a scheduled payment plan for the monthly payment to the credit card. If you miss a payment, your credit card company will withdraw your 0% rate and may even impose a high rate on the remaining balance. So it is very important that you don't miss a single payment. Be aware that when you use a credit card to finance your home improvement project, you cannot claim any tax deductions on the interest you pay. Hence, it is extremely important that you retain your 0% interest rate till you pay off the loan.

If your home improvement project is a large one and you want to do it in stages, HELOC, or Home Equity Line of Credit, is a good option. Search the Internet to get the best rate. Find a bank that not only offers the best rate but also waives the finance charges. When you take a HELOC loan, you are essentially putting your home as collateral and the interest you pay may be tax deducible.

Refinancing your home is a good choice if you have a large equity in your home or you want to reduce your existing mortgage rate. Also, if your home improvement project will add substantial equity to you home, refinancing is an attractive option. You will also get tax benefits on the interest you pay.

Obtaining a second mortgage to finance your home improvement project makes sense if you get a low fixed interest rate and the interest rate on your first mortgage is even lower than the second mortgage. A second mortgage involves less paper works than a full refinancing.

Are you thinking about getting your money from your company's 401 (K) plan? Forget it. Don't use your 401 (K) plan money for your home improvement. A 401 (K) plan is for your retirement not for your home improvement projects. If you are not old enough (59.5 years or more) to take a distribution, you will have to pay tax and 10% penalty for any withdrawal from your 401 (K) plan. Borrowing against your 401 (K) savings is also not a wise choice because 1) you have to pay it back with the above average interest rate 2) money borrowed from your 401 (K) plan will not earn anything in your 401 (K) plan till you pay it back completely. On top of that, if you are laid off you will be hit with the tax and a 10% penalty unless you pay the remaining balance in one lump sum.

Don't make a decision on haste. Weigh the pros and cons of various methods discussed above and your current situation. Find the best way to finance your home improvement project using other people's money and without hitting your pocket book hard.

100 Home Equity Loan

3 Ways to Build Equity in Any Real Estate Market

Home Equity Loans

Market fluctuations, demographic location, and owner upkeep all play an essential role in the value of your home. Your equity is the difference of what you owe on your mortgage(s) and the current market value of your property.

In many cases equity takes time to build up any substantial amount. Of course when the market turns on a flat or downward spiral you can lose a substantial amount of equity if you are not prepared for it.

The average appreciation is 7% per year for a national average and in some cases we have seen up to 20% or more. Although these are rare occurrences they make the real estate market the most lucrative marketplace in the country.

One of the most common misconceptions about real estate is leverage. When you have exceeded the 80% Loan to Value limit on your mortgage you are eating away at your own personal wealth. Your interest rates are higher and your overall cash flow is decreased substantially.

So how can you build and protect your equity in any type of situation while keeping your shirt on your back? There are several options.

The first and most common way to build equity is the old fashioned fixed rate loan with terms between 10 - 50 years. Of course the longer the term the more prolonged the pain of a mortgage may be.

If we were to look at a number line and we placed from left to right the terms (length of time for the fixed period) of the fixed rate mortgage you would see starting at the left 6 months to 50 years. All of these would be increasing 6 months, 1 year, 2 years and so on...

All of these numbers would be on the bottom of this rule. Secondly on top of the number line you would look at interest rates starting from the left let's look at the 6 months term = 5.5%, the 1 year term = 5.87% and the rates increase upward the longer you secure your fixed rate period.

The second option is using an equity builder program such as the biweekly payment plans or the extra principle payment once a month to your mortgage lender. Problems here are the extra amounts of cash going to the lender and the extra steps in paying your biweekly payments.

The biweekly payment plan works because interest is calculated on a daily principle balance if you pay 1/2 of your mortgage on the 1st of the month and 1/2 on the 15th of the month you essentially cheat the system because you are breaking the interest accrual down from every 30 days to every 15 days. Hopefully your lender is quick with payment processing.

The third option is to calculate the difference between your fixed rate mortgage and an interest only mortgage payment. By obtaining an interest only payment and paying the 30 year fixed rate payment you are again cheating the system by lowering the principle every month.

This results in building equity faster than the traditional fixed rate mortgage.

Home Equity Loans

Considering a Home Equity Loan?

Home Equity Loan

If you own your home you have a financial resource available to you that can help you with your financial needs or concerns. What is it? HOME EQUITY!

Equity is the value of your home minus the remaining mortgage balance which is outstanding. While you live, eat and sleep in your home worrying about debts or wishing you could refurnish the living room you may be sitting on the cash that will grant your wishes.

Why Would You Want an Equity Line of Credit?

Unlike a typical loan which deposits a set amount of money in your account and begins charging you interest and payments at a fixed rate until repaid, a line of credit acts as a revolving credit (like your credit card). You do not need to pay interest on the full amount you have access to -- you only pay for what you have used. Also, like a credit card, when the debt is repaid you still have access to the credit.

Using an equity line of credit (also known as a Home Equity Line of Credit or HELOC) gives you greater flexibility with the least cost. Not only can you access the credit only as you need it, but your monthly payments will reflect only the balanced used. The less used the lower your payment. Some lines of credit have only the interest as the minimum payment which can be helpful when finances are tight.

An equity line of credit is great when you don't have a large fixed amount to spend in one place that will take many years to repay and you want access to the credit without asking for a new loan when you have paid it back.

What Can I Use the Equity Line of Credit For?

While you can no doubt find numerous uses for your line of credit, here are samples of the more common reasons for obtaining an equity line of credit.

Consolidate Debts

Using your equity line of credit to consolidate other debts can not only eliminate the stress of multiple bills but can also give you a more favorable interest rate or tax benefit.

Second Mortgage

Use your line of credit to pay off the existing mortgage for better interest rates.

Add On, Update or Go Away

You may use your line of credit for renovating, buying new furniture or a car, or taking a vacation with less interest payments than using a credit card or store card making it a wise choice for large purchases.

When Should You NOT Use a Line of Credit?

Before succumbing to what seems like 'easy money' it is important to evaluate the additional risk.

Some debts -- like student loans- have features that you may not be entitled to if you switch them to an equity line of credit.

Other items like cars and vacations may seem like a good idea to buy with your home equity line of credit, but with the ability to pay only the interest you may find the motivation to pay off the debt is lacking and end up owing for items that have lost their value or were consumable. Plan to pay off the debt quickly for the most advantage.

Second mortgage (or refinancing) may or may not be a good idea depending on interest rates and your repayment terms. While lines of credit take advantage of current low interest rates you may find that your regular loans protect you better from fluctuating rates if you will not be paying the loan down in the next few years.

Using your finances wisely can give you great relief and freedom. Before taking on any financial obligations it is important to understand the risks as well as the benefits.

100 Home Equity Loan