Home Equity Loans And Lines

By Kaci Cooper, 23 Jan 20:30

If you want to know what a HELOC is, this is the article with the definition. In the world of loans, there are two types of home equity borrowing, home equity lines of credit and home equity loans.

-A Home Equity Line of Credit (HELOC) is your right to borrow money from your lender up to a certain amount. The “line” is the line of credit based on your house, which if you cannot pay up, gives the lender the right to take your home away from you, after sending you a few cantankerous letters. Keep in mind HELOCs (Hee-locks) usually have floating interest rates that change every so often.

For example, a borrower might be given a seventy-five thousand dollar HELOC at “prime plus one.” This means that the interest will be one percent higher than the prime interest rate. If the prime is 7.5%, then the HELOC will be 8.5%. Do not forget that this rate is subject to alteration as often as every billing month. Look for lenders that will allow a fixed interest rate for a certain amount of time, called a “Fixed Rate Partition.” The buyers that ought to look into HELOCs are buyers that want some extra money for home improvements or to buy a different home altogether. Do not obtain a HELOC to pay for a vacation or to pay credit card debt because a HELOC is backed by your house, which means that you have a long way to fall if you cannot pay off this type of loan.

-Home Equity Loans deal with a lender giving a buyer a certain amount of money that is expected to be paid back in a certain amount of time through a fixed payment schedule. Usually a Home Equity Loan has a fixed interest rate. This is a viable option, especially if the buyer believes that interest rates are about to increase, or values the security of knowing what each month’s fees will be. Home Equity Loans tend to be better than Lines if the buyer knows the exact amount of money they need to be borrow and when it needs to borrowed by.

These types of loans can be obtained through a mortgage broker or directly through a bank. Usually these are considered second mortgages because they are normally put into practice after a home has already been purchased with a first mortgage loan.

Taxes and Interest
It is important to itemize your reductions because unlike credit card debt, the interest on loans used to obtain a home are typically tax deductible. Note, however, these restrictions are usually limited to loans up to one hundred thousand dollars.

The Loan to Value Ratio determines the interest rate, along with your credit rating. Credit ratings of excellent (760) can sometimes set the interest rate below prime; good credit scores (700 to 760) will usually amass to an interest rate equal to the prime interest rate; and poor credit scores can often hike up the interest rate between one and five points, which might prevent appraisal fees, but might cause an annual or “recording” fee.

The Good Points of a HELOC
HELOCs can be used to pay for anything, although they were originally meant to be used in order to purchase a home. Today, however, those with HELOCs use them to purchase almost anything. Also, many HELOCs have online internet access which allows you to pay bills online. They can also be used as a second mortgage, and often are in cases where the first mortgage covers 80% and the second mortgage will finish off the cost. Like credit card debt, HELOCs can be paid off any time without penalty.

The Negative Side to a HELOC
Home equity lines must be taken seriously because they are secured by your home. Using them as a quick fix to pay for a vacation or fix credit card debt can put your home in jeopardy. This means that you need to research home equity lines until you fully understand the consequences, as well as the benefits that come with home equity lines.

Home equity lines and loans both have positive and negative sides for buyers to consider. Thus, research is necessary to protect your home and your life.

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