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Home Equity Loans: A Choice Favoured By All
Having a roof over your head that you can call your own not only gives you a sense of security, but in times of need can also become an excellent source of credit. In simple terms, your home can turn out to be a great source of money. You can draw out credit against the equity in your home. Such a form of credit is referred to as a home equity loan.
Home equity loans are preferred over other loans for many reasons. For one, you can use the money from your home equity loan in any way you wish. You can use it to remodel your home, or pay off your debts or even finance your child?s education or wedding. The second reason why these loans are so popular is that there are a large number of home equity loan packages available in the market that you can choose from. Thirdly, these loans give you certain tax benefits that other loans do not.
Home equity loans are a favourable alternative for banks too. The obvious explanation for that being that there are a lot of takers for these loans. So, banks earn a lot of business via these loans. Another reason why banks love to lend out home equity loans is that these loans are secured loans. In other words, you have to pledge your home as security to draw out such a loan. In an event where you fail to repay the loan, the bank can always sell off your home and recover its money. So, it always is a win-win situation for the banks.
Although, home equity loans seem like a lucrative option for homeowners in need of some quick cash, you must always be watchful against lenders and brokers who are unscrupulous. They know that you cannot afford your mortgage payments, yet they try and entangle you into taking a home equity loan. Their motive, of course, is to bring your home under the risk of foreclosure.
Your only safeguard against such people is to always research and do your homework before you plunge into the lending market. Also, always stay on guard against any hidden charges in the loan contract. You must remember to read the fine print. Do not hesitate to ask your lender as many questions as you want. Remember, the lender needs your business, not you, so you are in a stronger position. Some caution and a bit of smart shopping can help you find that perfect home equity loan that you so desire.
FED Outlook: Time to Chage Your Home Equity Line into a Fixed Second
Alan Greenspan has left office, so with the new man in charge (Ben Bernanke), we can only guess what the future might bring us in terms of Fed policy. If only I had a crystal ball that would tell me what the fed and markets will do regarding interest rates, I might be able to retire with Bill Gates money. However, since I don?t I can only take the advice and knowledge of the experts who are paid the big bucks to study this data and make recommendations to you my client.
When we borrow money, my goal as a loan professional is to ensure you receive the lowest cost for your borrowed funds, so the knowledge I read and learn about daily assists me in helping you make decisions about your mortgage along with me making decisions about my mortgage. During the process of home ownership, I will continuously weave in and out of various loan products through refinancing to ensure that I have the lowest cost for my borrowed funds.
We know the Fed just raised short term interest rates 1/4 point on January 31 and we know in all likely hood the Fed is going to raise rates again another 1/4 point in the months ahead. If you have a home equity line of credit, you are feeling the pain of this in a major way because every time the Fed raises rates, you see it reflected on your statement for your Home Equity Line in the form of a higher payment because the ?Prime Rate? has gone up which is what your Home Equity Line is based on.
I?m closing on a house at the end of March. I prefer 100% interest only financing on my home because I believe in managing my equity separate for wealth creation purposes, however the Fed is making me think twice about how long do I stay at 100% or drop my equity position down to 90% LTV. For now, I have decided to stay the course because of tax benefits from interest deductions and the offset of my tax free investments.
I was setup to close on the loan with a Interest Only Home Equity Line and switched to a Fixed Second now with a principal and interest payment. Currently my payment was going to be $42 more per month with the Fixed Second, but now that the Fed raised rates I had enough foresight to change to the fixed and lock my loan before that happened. Had I not locked my loan, I would have a higher payment on the Home Equity Line than I now have on the Fixed Second with a P&I payment.
As you can see, this simple little step will give me 1/2% lower interest rate on my Second saving me well over $1,000 in the next couple of years in payments not to mention a portion going to principal which I will separate out in 5 years. Should the markets change and Prime goes down, then I will refinance my 2nd (at no cost to you or me) to ensure I always have the lowest cost of my borrowed funds.
A true mortgage professional is going to help you manage your mortgage so that you have always have the lowest cost for your mortgage. The differnece will determine how much wealth you create by paying less for your borrowed funds.
Home Refinancing for People with Bad Credit - How to Avoid High Fees
Avoiding high fees when home refinancing with bad credit is as important as finding low rates. With fees adding up to thousands of dollars, make sure that you are getting the best deal by comparing lenders. Also look at other types of credit to securing cash out financing.
Ask About Closing Costs And Fees
To save yourself money, research lenders before settling on a refi loan. Request loan quotes that include information on closing costs and fees. The APR will include the interest rate, closing costs, and any annual fees. But be sure to also ask about early payment or any other fees.
Be aware of fees or closing costs that are included as part of the principle. These are often labeled as ?zero down? loans, but in reality you are paying for those fees throughout the loan.
With loan quotes, know that even the fees are negotiable. You can ask for them to be removed or eliminated. Some fees, such as the early payment fee, are only removed if you pay an additional amount at closing.
Select Low Fee Terms
While you are researching financing companies, also take a look at how they structure their loans. Often the lowest rates, such as interest only or balloon payment loans, have the highest fees.
Select terms that are more favorable for low fees, such as fixed or adjustable rates. Adjustable rates are usually the lowest costing loans with some risk of increasing future rates.
Other Ways To Cash Out Your Equity
If you are simply refinancing to cash out part of your equity, consider applying for different types of credit to save on fees. Second mortgages and lines of credit have much lower closing costs than refinancing your total mortgage. They can also be held for a shorter period, which also saves you money.
While low fees may be your goal, be open to better financing options. By comparing the APR, you may find that average fees can yield better rates that will save you money. The longer you keep your loan, the more important low rates will be.
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