Home equity loans are beneficial for numerous reasons. If you own a home, and need extra cash, obtaining a home equity loan will put cash in your pocket. The money received can be used for any purpose. Because home equity loans are dispersed as a lump sum, homeowners usually apply for these loans to pay for a huge expense.

No-Equity Home Equity Loan Basics

For the most part, the amount received for a home equity loan is according to your home’s equity. Lenders are reluctant to approve homeowner for loans that exceed the equity value. However, you may find a lender willing to offer a no-equity home loan. Also referred to as 125% home equity loans, these loans are both secured and unsecured. Lenders that offer these loans will grant you a home equity loan up to 25% more than your home’s value.

Why Get a No-Equity Home Loan?

125% home equity loans were extremely popular in the 1990’s. In more recent years, the amount of people applying for these loans has dwindled. Those who apply for these sorts of loans generally require a large sum of money, and do not have sufficient equity in their homes. However, because of rising home values, few people are taking advantage of no-equity home equity loans.

Dangers of No-Equity Home Equity Loans

While obtaining more than your home’s value may appear to be a solution to extreme money woes, no equity home loans are very dangerous. Today, the housing market is strong. Most cities throughout the country show a 22% increase in home values annually.

However, if the housing market was to slow down, and home values began to fall, those who obtain a 125% home equity loan would likely be unable to sell their homes. For example, if your first and 125% second mortgage amounts to $200,000, and you can only sell your home for $150,000, you are responsible for paying the lender the addition $50,000.

Furthermore, some homeowners are unable to afford the extra monthly payment of a high second mortgage. If you default on a home equity loan for three consecutive months, the lender may foreclose. While these loans are ideal for paying off bills and debt consolidation, some homeowners fail to close paid off accounts, which results in acquiring more credit card debt after the accounts are paid.

Here are our recommended Home Equity Loan Companies online.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.

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Home Equity Loans

Summary: There are two types of home equity loans which are Fixed Rate Type (Lump Sum) and HELOC. Read on for more information.

Home Equity Loans did explode in popularity in 1996. Why did it gain considerable regard was due to the fact that home equity loaners can borrow substantial amounts up to $100,000 and still deduct all of the interest when they file their tax returns. The interest paid on home equity loan is tax deductible, and by merging debts (tax and interest), consumers get a single payment with a lower interest rate (through merging as opposed by two separate accounts) and tax benefits.

So what home equity loan? A

home equity loan is the amount borrowed and intended to pay each month for over a calculated amount of time, using a property as collateral. There are two types of home equity loans and they are:

Fixed Rate Types of Home Equity Loans

Fixed Rate Types of Home Equity Loans are one time lump sum that is equivalent to the collateral’s value. Why lump sum? As opposed to the Line of Credit Type of Home Equity Loans (which we will discuss shortly), fixed rate type allows the applicant to have a lump sum (as much as $100,000) to be issued which is then repaid over a set amount of time. The payment and the interest rate remain constant over the span of the loan contract, thus called fixed rate. And until the loan is repaid, no other loan shall be entertained.

Line of Credit Types of Home Equity Loans

Line of Credit Type is considered a variable rate loan. It functions very much like a standard credit card; some HELOC plans even complements as one. Loan applicants are therefore approved of a certain credit limit that is proportional (or in some cases lower

than) to the value of the property. The duration of the term is still present and when the term has expired, the outstanding loan balance should be paid. Line of Credit Types of Home Equity Loans are commonly referred as HELOC (Home Equity Line Of Credit).

Home equity loans are valuable options for homeowners, especially responsible ones. But with irresponsible spending, these options may very well be dangerous pitfalls to any homeowners. This much allowable money, especially on fixed rate type of home equity loans can lead to excessive spending that would eventually cause the loss of property.

Line of credit types of home equity loans are much safer course of credit practices since it offers minimal credit issues. Coupled with an exercised caution in spending habits and faithful reimbursements every month, it is a convenient way to cover short term recurring costs that can be covered by a steady and reliable source of income.

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Rates on Home Equity Loans

Summary: Stated income home equity loan is a loan made without the presence of the usual documentation ONLY by applicants with high credit ratings.

Stated income home equity loan may be a breeze for the majority of loan applicants, but for some individuals this can be a major pain in the ass. So what’s the science about Stated Income Home Equity Loan? For a rather hefty explanation needed to get this point through, the mechanics is really simple.

The best home equity loans are generally for conforming loan applicants. That is requiring a proof of income, the documentation of asset or collateral and other loans/debts (debt ratio)

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Cheap Home Equity Loans

For the most part, homeowners are familiar with home equity loans and home equity lines of credit. With either option, you are able to acquire funds for emergencies, home improvement projects, etc. Getting a line of credit and using your home’s equity to your advantage is a huge benefit to owning a home. However, before completing the credit application, homeowners should carefully read and understand the credit line agreement.

How Does a Home Equity Line of Credit Work?

A home equity line of credit is a credit line that is based on your home’s equity. For example, if you owe $80,000 on a $120,000 mortgage, your home’s equity is $40,000. When applying for a home equity line of credit, the lender will approve you for a credit line up to the amount of your home’s equity. Lines of credit are slightly different than home equity loans. While home equity loans are also based on your home’s equity, homeowners obtain a lump sum of money upon approval of their loan application. These loans are generally based on a fixed rate, whereas lines of credit have variable rates.

How to Obtain Funds with a Home Equity Line of Credit

Getting money from your home equity line of credit is very simple. Once a lender approves your line of credit, you will be issued a checkbook or ATM card. Whenever you need cash, you simply write yourself a check from your credit line. Because the amount you withdraw from a line of credit varies, your monthly payments will also vary. If you prefer a predictable monthly payment, a home equity loan will best suit your needs.

Home Equity Line of Credit Prepayment Penalty

Home equity lines of credit have specific terms. Your lender may approve your line of credit for 10 to 25 years. At the end of the term, you must re-apply to obtain another credit line. Home equity lines of credit are similar to other mortgage loans in regards to prepayment penalties.

Before applying and accepting a lender’s offer, carefully review the offer and inquire of prepayment penalties. With a prepayment penalty, you are charged a fee if the credit line is closed before the end of the term. Typical fees are about $500. However, if the balance on your line of credit is zero, but the account remains open for future withdrawals, prepayment fees will not apply.

Here are our recommended Home Equity Loan Companies online.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.

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Home Equity Line of Credit

Summary: Because secured home equity loans are loan agreements secured with collateral they have lower interest rate compared to unsecured loans

Even when pressured by surmountable debt, there is always a deal out especially if you haven’t signed an equity loan. This loan is your way out but wait! A couple of missteps here can as well lead you to a deeper financial quagmire so school yourself properly on how to deal on a secured home equity loan.

Setting your house as collateral is no joke. Your house is your most prized possession and one careless mistake could lead you and your family to ruin. Home equity loan should be taken seriously because businessmen are not only after the interest you pay.

It is understandable that when problem pressure becomes too restricting, carelessness is usually a result since the only thing your vision can comprehend is a way out from your financial quagmire. Bad deals and a couple of wrong choices and wham! Personal debt that you have no way of repaying unless you lose your most cherished possession.

So what is exactly a secured home equity loan?

Secured home equity loan is a credit or loan agreement that is secured through

collateral set by the loan applicant. Collateral (in Home Equity) is primarily the property of the applicant whether it is a primary or secondary doesn’t matter as long as the indicated property is the legitimately owned by the applicant. The applicant is awarded a credit line or a lump sum that has an indicated set period where the amount should be paid plus the interest. If in event the applicant cannot repay, the property is foreclosed and repossessed. After which the equity lender should be able to recoup all or most losses by reselling the property. That’s the main reason why secured home equity loans have lower interest rate compared to unsecured loans.

On the other hand, since unsecured loans have no agreed collateral, interest rates are substantially higher and the set period of repayment time is set shorter. These

loans types are dischargeable by declaring bankruptcy. Because of the nature of the deal, lenders are more skeptical in releasing unsecured bonds than secured home equity loans.

By applying a secured home equity loan, the deal puts your home at risk, especially if you’re riddled with debts. The Truth in Lending Act allows three days from the day the agreement was signed to call off the negotiation. So if the collateral is your principal dwelling, this would allow you to change your mind for any reason.

The only reasons that homeowners consider secured home equity loan is that it provides a substantial amount of money with considerably less interest than credit cards. Plus the length of time needed to pay is long, making the recoup of finances a lesser burden. Be very careful though, these deals are tied to your homes.

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Home Equity Line of Credit

Getting a home equity loan without perfect credit can help you pay for home repairs, consolidate debt, or provide a college education. Even with poor credit, you have several factors going for you, including your equity investment. And with online lenders, you have several choices when it comes to lenders. Being a smart shopper with your terms will ensure that you get a good deal on your second mortgage no matter what your credit score.

What You Got Going For You

Maybe you have a couple of bad marks on your credit, but remember the positive factors you do have. For one, the equity in your house can secure a potential loan at lower rates than other forms of credit. You also have probably made several on time bill payments.

Unless you have looked at your credit score lately, don’t assume you have bad credit. There are hundreds of factors that determine your score besides payment history. And time will eventually erase all your credit mistakes, even a bankruptcy.

If you are concerned about your credit history, take a look at your credit report. You can verify the information is correct and know where you stand credit-wise.

Sub Prime Lenders Or Not

Sub prime lenders offer financing to those turned away by traditional lenders. With their slightly higher rates, they accept higher risk loan applicants. However, traditional lenders are also dealing in sub prime lending.

Before you choose one lender, start asking for loan estimates from both sub prime and traditional lenders. Be honest with your credit history to get realistic quotes. You may be surprised who offers you the better deal.

Pick Better Terms

Rates and closing costs determine the majority of the cost of a loan, but terms are also important. For example, long term loans delay payment and increase your interest charges. However, they offer low monthly payments which can fit with your current budget needs.

You can also negotiate changes in caps, rates, and fees. You may also want to keep the option open to refinance when your credit score improves.

No matter which home equity loan lender you choose, make sure they offer you a financial deal that fits your needs. Otherwise, you should keep looking for a better offer.

See my recommended Home Equity Loan Lenders online.

Carrie Reeder is the owner of ABC Loan Guide, which offers help with loans for people with low credit scores.

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Home Equity Online