DO YOU NEED HOME EQUITY LOAN

A home equity line of credit is very closely related to a home equity loan but the subtle differences can mean a lot. Determining which option is the best for you relies upon you knowing your current situation and having a clear plan for what you wish to accomplish with the money.

A home equity loan is a lot like a mortgage. With a home equity loan you are able to borrow the amount of your homes value that you have already paid off. The benefits of this type of loan is that it is almost always guaranteed since it is based upon the amount of your home that you already own, the terms are almost identical to a mortgage and you receive the entire amount of the loan up front after closing.

While a home equity loan is also based upon the amount of your home that you currently own, the terms of the loan are very different. A home equity loan is basically a credit card where the limit is the amount of equity that you have in our home. Instead of receiving one large lump sum of cash, you will receive an overdraft type of service on your account that will allow you to withdraw as much or as little of the equity that you wish to use.

Which choice is better for you? The answer depends upon what you need the money for. With a home equity loan the monthly repayment schedule is known and the interest on your loan will be lower than most other types of loans. However, with a home equity line of credit, you have instant access to cash and the payments will vary depending but the interest will vary. With this in mind the question really becomes do you need access to a varying amount of money or one known lump sum of cash?

A lump sum of cash with a set repayment schedule is great for specific things such as debt consolidation or the funding of specific projects with a predetermined cost. If you are considering debt consolidation for credit cards or any other high interest loans a home equity loan is most likely a very good idea. You will be able to repay all of your debt and will only have to make one monthly payment at a lower rate of interest that you are currently paying on your cards and other unsecured loans.

Home equity loans also make perfect sense if you know the exact amount that you need to borrow. While it is always nice to have cash on hand it is often better to have more credit available to you. The more of your credit limit that you use up the higher the interest rates will be for you and the tougher it will be to borrow more money in the event of an emergency. It is definitely to your advantage to only be in debt for a specific amount to complete one project.

A line of credit option may be better depending upon what you wish to do with your money. While you will still use up a portion of your credit limit, the payments and impacts on your available credit may be lower. With a line of credit you always have the same amount of money available to you. As you pay off the amount of credit used, you can reuse that portion if needed without having to apply for another loan. Also your payments may be considerably lower since you are only paying on the amount of money that you have actually used, not the total amount borrowed.

As you can see there are some big differences between a home equity loan and line of credit. If you are looking at a single project, such as a new car or adding a pool to your home, a home equity loan is the better choice for you. However, if you are looking at starting up a new business, wish to travel or can not settle on predetermined amount money, then a line of credit is the better option for you. With a line of credit you can use as much of your credit as you wish whenever you wish and, much like a credit card, you can reuse the amount of the line of credit that you have repaid with out having to re-apply for a loan.

MORTGAGE IMPORTANCE

Mortgage amount

Original or expected balance for your mortgage.

Interest rate

Annual interest rate for this mortgage.

Term in years

The number of years over which you will repay this loan. The most common mortgage terms are 15 years and 30 years.

Monthly payment

Monthly principal and interest payment (PI).

Monthly payment (PITI)

Monthly payment including principal, interest, home owners insurance and property taxes.

Annual property taxes

The annual amount you expect to pay in property taxes. This amount is divided by 12 to determine the monthly property tax included in PITI.

Annual home insurance

The annual amount you expect to pay in home owners insurance. This amount is divided by 12 to determine the monthly home owners insurance included in PITI.

Total payments

Total of all monthly payments over the full term of the mortgage. This total payment amount assumes that there are no prepayments of principal.

Total interest

Total of all interest paid over the full term of the mortgage. This total interest amount assumes that there are no prepayments of principal.

Prepayment type

The frequency of prepayment. The options are: none, monthly, yearly, and one-time payment.

Prepayment amount

Amount that will be prepaid on your mortgage. This amount will be applied to the mortgage principal balance, based on the prepayment type.

Start with payment

This is the payment number that your prepayments will begin with. For a one time payment, this is the payment number that the single prepayment will be included in. All prepayments of principal are assumed to be received by your lender in time to be included in the following month's interest calculation. If you choose to prepay with a one-time payment for payment number ZERO, the prepayment is assumed to happen before the first payment of the loan.

Savings

Total amount of interest you will save by prepaying your mortgage.

ADVANTAGE OF HOME EQUITYLOAN

Here are some reasons why equity home line is attractive to many borrowers:

1. Interest rates are typically low with this specific type of revolving credit.

2. There are big chances of tax deduction on equity home line payments, which minimizes the chance of extra expenditure.

3. You can qualify for these, even with a poor past credit report.

4. Here you can get a large credit for purposes like reconstruction of your home, to pay tuition fee of your chidren or to consolidate high rate debts, which are creating headache to you.

REFINANCING

In this life, if one thing's for certain, it's that nothing is certain. The purpose of having savings is to provide for the future, which is unknown. There are undoubtedly going to be "bumps" along the road of life that can't be foreseen. Whether the "bumps" are associated with the loss of a job, relocation, medical problems, etc. they have to be dealt with. The ability to refinance is often a solution to one or all of the "bumps" we encounter. Refinancing is not, however, solely associated with the negative externalities of life. A surge in income might present the opportunity to refinance one's property so that it is paid off years before it previously would have been. Refinancing is a tool through which moneys can be reallocated so as to better an individual's monetary position as it fluctuates.

REFINANCING EQUITY LOANS

For homeowners, it seems that there is always more work that need be done to keep their property in its best possible condition. Home improvements can be costly and extensive, but they continuously need to be done. There are some small projects that can be handled via the simplicity of a credit card or personal loan, however, for larger, more costly projects it makes sense for homeowners to utilize the equity that their home generates to get a further loan from their creditor. Once you have agreed upon a home equity loan with your creditor, as it happens with other loans, the interest rates will continuously fluctuate over time, possibly up, possibly down. When the interest rates drop, homeowners can choose to refinance their equity loan in order to take advantage of the generated savings.

HOME EQUITY LOAN

There is a great deal of responsibility that comes with the territory of becoming a homeowner. You must pay close attention to the current rates and look to refinance your mortgage when it can save you a great deal of money. Another, more basic responsibility, comes with the upkeep of the home itself. Over time, homeowners are going to need to make repairs, renovations, adjustments, improvements, or additions to their aging property. Home equity is designed specifically for such a purpose. Home improvements are usually costly to the point that it no longer makes economical sense to use a simple credit card or personal loan to finance the work. Through utilization of your property's equity, you can receive a percentage from your creditor through which they can make the necessary home improvements or additions. To a certain extent, equity loans are also deductible from Federal Income Tax. For expensive improvements, a home equity loan is the smart choice for the savvy borrower.