Tuesday, March 16th, 2010
A study conducted from October 10-12, 2006 by Harris Interactive ® by Countrywide Home Loans indicates that Americans don’t fully comprehend or utilize their home equity as a financial tool. “There’s a prevalent misperception about mortgages that may prevent many Americans from realizing their home’s full financial potential,” says Dan Hanson, managing director of Countrywide Home Loans. If you understand that your home equity can be leveraged for personal and financial goals, you are one step ahead of most Americans.
There are a lot of reasons to consider utilizing your equity and refinancing your home equity loans into a new first mortgage. Just because you already have an equity loan doesn’t mean that you can’t still use your home equity as a financial tool. If you are in debt with credit cards or have other revolving debt, debt consolidation may be an excellent way to make use of your equity. Your interest rates and payments are likely to be lower, especially if you cash out. If you can be responsible with your credit cards after consolidating, you will ultimately save money in interest.
If you have already taken out home equity loans or have a 100 % first mortgage you can still refinance. You can pay off your 2nd with a new 1st mortgage refinance or consider converting 80-20 home loans that you took out to avoid PMI. 100% percent mortgage financing is not an impossibility. If there is equity in your home, you can still cash out and a select group of mortgage lenders will allow you to refinance up to 110% and there is still no PMI. However, if you refinance for 90% or more, keep in mind that there will be a higher interest rate because the LTV exceeds 90%. You should also consider a home equity refinance if you have an adjustable rate loan with rising payments.
Consider all your second mortgage options carefully. The trick to realizing your home’s full financial potential is to stay educated and make wise decision. Equity that is used for further investment or for saving money in interest may be a smart choice. Just be sure get all the information for each home equity loan quote, so you can and to work with a lender that you trust.
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Monday, February 8th, 2010
Many people think of a second mortgage as a fixed interest, lump sum loan. However, that is only one form of a second mortgage. A second mortgage is actually ANY secondary lien on your home–secured loan with your home pledged as collateral. Second mortgages are typically categorized as fixed mortgage rate home equity installment loans (HELs), also known as home equity loans, and home equity lines of credit (HELOCs) which are adjustable rate mortgages.
The Federal Reserve states that the home equity line of credit annual percentage rate (APR) is a variable rate loan based solely on a publicly available index (such as the prime rate published in the Wall Street Journal or a U.S. Treasury bill rate). The APR does not include points or other finance charges. The monthly payment amount will adjust as your loan balance and interest rate changes. Loan terms can be anywhere from 15 to 30 years.
HELOCs have a draw period, typically occurring in the first 10-15 years, with the remaining term on the loan referred to as the repayment period. During the draw period, you can draw out money on a revolving basis similar to a credit card without applying for a new loan, as long as the amount does not exceed the total amount of the original HELOC. During the repayment period you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the draw period ends. Interest is paid only on the amount of equity you use.
A Home Equity Installment Loan (HEL) is a fixed mortgage rate loan, which means the annual percentage rate (APR) and monthly payment will stay the same for the life of your loan. The APR for a HEL takes into account the interest rate charged plus points and other finance charges. Loan terms can be anywhere from 5 to 30 years, but are typically 15 to 20 years. Unlike a HELOC, you get a lump sum for which you immediately start paying principal and interest. If you decide later that you need additional funds, mortgage refinancing or getting an additional loan with additional closing costs are your only options.
Which type of loan you choose depends on your financial needs. A HELOC may be best if you have a recurring need for money (e.g., home improvements or a home repair project that has anticipated additional expenses). The Security 2 fixed mortgage rates could lead much-needed aid is time consuming (for example, debt consolidation).
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