Equity: Making Your Loan Work For You
A mortgage can do much more than help you buy a home. If you keep up with it
well for a number of years, you build up equity: a source of liquid money you
can access should the need or want arise. Equity is a simple math concept that
goes like this.
Let's say you took out a loan for a $300,000 home. You've worked hard for years
and have reduced the loan's balance to $100,000. This means that $200,000 of
that home is now yours. That $200,000 is your equity, the amount of money that,
were you to sell the house, would be yours.
But you don't need to sell your house to access your equity. Equity can be made
liquid through a number of different means. The most popular are the cash-out
refinance, equity loans or second mortgages, and home equity lines of credit.
They all have their benefits and downsides, and specific instances of
usefulness.
The cash-out refinance is a simple matter of taking out a new loan to pay off
the existing loan plus some cash on top. Using our previous numbers it would
work like this. You bought the home for $300,000 and now you owe $100,000. If
you take out a new loan on the home for the amount of your equity ($200,000) you
can pay off the remainder of the first loan and have $100,000 left over to do
with what you wish. Keep in mind that turning your equity liquid involves taking
out another loan, which must be repaid.
The home equity loan is another way to turn those assets liquid. Lenders will
usually make loans up to 80% of the value of a home, so with the $300,000 home
you have, you can get $240,000. Pay off the first loan's $100,000 balance and
you have $140,000 left to your discretion.
Your third option is the home equity line of credit. Depending on your credit
history, you can get a very high percent of a home's value in financing. Let's
say you have great credit and you get 90% financing on that $300,000 home. That
equals $270,000. After you pay off your first loan of $100,000, you have
$170,000 left over.
Keep in mind that there are wise and unwise uses of your equity. If you fail to
pay it off, there is a lien on your property so you could lose your house.
Equity is a good way to pay for a number of the large expenses in life. College
tuition, cars, and second honeymoons are popular and wise uses for equity funds.
That helicopter landing pad you've always wanted on your roof is not a wise use
of your equity. Neither are flashy cars or anything that would normally be
outside of your means and won't give you a good return. College degrees, for
instance, are good investments because they help you or your children to make
more money, producing a good return on your investment.
Equity can help you do a lot of things you may need or want to do, but equity is
a responsibility just like any loan. When considering liquefying your equity it
is vital to consider all the factors.
About the Author
For more information about Equity and Mortgages, please visit
www.ccitymortgage.com
Debbie Dragon is a freelance writer who specializes in writing quality content
that is both informative and keyword optimized for SEO, and sales copy. For more
information, contact debbiep@mhcable.com
Home Equity Loans
Many homeowners get a home equity loan to consolidate bills. This can be a great strategy if you are overburdened with high interest credit card and/or consumer loan debt. A home equity loan can usually be obtained at a lower rate and all or a portion of the interest you pay on the loan may be tax deductible. If you are considering a home equity loan to consolidate your debt it will be wise to cut up your credit cards and close out the accounts. The last thing you want is to take cash-out of your home and end up back where you started from because you did not have the discipline to stop using your credit cards!
A home equity loan can also be a great source for obtaining cash to make home improvements. Next to debt consolidation, home improvements are the 2nd most widely used reason that consumers obtain home equity loans. Depending on what kind of home improvements you are making, it can increase the value of your home which may help to justify the added monthly payment expense you incur when you obtain a home equity loan.
A home equity loan can either be in the form of a fixed-rate loan or an adjustable-rate line of credit. With a fixed-rate home equity loan you receive all of your money in one lump sum and the amount of your monthly payment is the same for the duration of the loan term. With an adjustable-rate home equity line of credit you are approved for a credit line amount in which you can draw from as needed. In most cases you will only pay interest on the outstanding amount and your interest rate is subject to change. As such your monthly payments may vary depending on the outstanding loan amount and interest rate in any given month.
There are many home equity loan lenders online who will lend to people with good or bad credit. You may want to compare the rates and programs of several lenders before making your decision to increase your chance of getting the best possible deal. Also, consult with your tax advisor to see how much of your home equity loan interest will be tax deductible.
About the Author
Levetta Rivera is a successful mortgage broker, author and publisher of the following web sites:
http://www.equityloansource.c...
http://www.badcreditloanshop....