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Home Equity Lines of Credit

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by Scottish Government

Alright, you’ve been a homeowner for some 10 years now, and you’ve decided it’s time for improvement and expansion. What is the best way to obtain the funding for home improvement projects? A home equity line of credit is often the most feasible and profitable way to access extra cash for home improvement.

How do you obtain home equity credit? What lenders provide home-equity credit? And who qualifies for home-equity created? All these questions will be answered in the following paragraphs, and hopefully from the information below, you’ll be at a more educated consumer.

All the equity lines of credit are obtained based on the amount of equity you have built into your column. If you had your mortgage for over 10 years you have established a considerable amount of equity and should be able to draw on that equity to improve and make repairs on your home.

Fixed rate mortgages or adjustable rate mortgages provide a consumer with the greatest opportunity for building equity in their home while paying for their home interest-only loans, 125 loans, and balloon notes do not help the consumer build equity over a very short time.

Quite often as we shop for mortgage products we don’t stop to think about the “down the road” needs we might experience as a homeowner. That’s why today’s market of interest-only loans and 125 loans do not seem to operate in the consumer’s favour. As you make your mortgage payment each month a portion of the payment is diverted to the interest, and the remaining amount is applied to principal; it is through this process that we build ‘equity’ in our home.

Over the course of the life of the home, say 10 years from now, we manage to outgrow our homes, we manage to overuse our homes and we manage to create a situation that is in need of repair. If you have a fixed rate mortgage or an adjustable rate mortgage you have managed to build the equity in your home and you high on the opportunity to open a home-equity line of credit, provided you have also taken care to protect your credit rating.

The amount of equity of establishing your home and your credit rating will determine the credit limit you receive on a home-equity line of credit. Your lending institution, your local bank, or for whom ever holds your mortgage will be the entity you approach for a home-equity line of credit.

So long as your payments are up-to-date, your credit is good, and you have a substantial amount of equity in your home you will qualify for a home-equity loan that is comparable to an open line of credit. You withdraw from your line of credit as necessary.

If your loan limit is say $ 10,000, and you need $ 4000 for plumbing repairs, you simply write a check drawn on your line of credit account to cover the expense and you would begin to pay interest on the loan amount of $ 4000. Seems to be a very simple way to operate wouldn’t you say?

Many of the leading institutions think so thus they created a home-equity line of credit; it’s a benefit for the consumer and it’s a benefit for the lending institution. The consumer has a quick way to draw on the equity in their home, and the late institution has a great way to make a profit. So what would be the downside of a home-equity line of credit? There doesn’t seem to be one.

The only downside we’ve been able to find, with that of the consent of the purchases the interest only loan, the 125 loan, or any of the many variations from these bases that does not allow for the building of equity as the mortgage is paid. Quite often the consumer does not realize the potential danger when purchasing interest-only and 125s.

But the mortgage lender does, or should. It was for this very reason during the 1920s at the interest only loan was shelved and taken from the market. We seem to have forgotten the lessons learned. For the consumer a home without equity, is a home without protection. A home without equity is not a benefit for the consumer.

Uchenna Ani-Okoye is an internet marketing advisor and co founder of Free Affiliate Programs

For more information and resource links on mortgages visit: Best Mortgage Rate Finder

How to Get Equity from Your Home

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If you have paid off a good portion of your house and its value has appreciated, and you find yourself in need of some extra cash, you may consider taking out a home equity loan.

Step 1: Assess your risk
Assess your risk. Borrowing against your home equity depletes your investment, and reduces the cash you can take out in an emergency.

Step 2: Learn the tax rules
Familiarize yourself with the tax rules governing home equity borrowing. To deduct interest you have to itemize, which cannot be done if you have too few deductions.

Step 3: Consider your borrowing options
Consider your borrowing options. A home equity loan is secured by house to the extent the fair market value exceeds the debt incurred when you purchased it. A home equity line of credit is a form of revolving credit in which your equity in your home serves as collateral.

Tip
Consider applying for a reverse mortgage loan if you are at least 62 years of age and occupy the home as a principal residence. A reverse mortgage is a loan against your home that you do not have to pay back as long as you live there.

Step 4: Decide on a loan type
Decide whether a loan or line of credit will best meet your needs. In general, a loan is best for short-term borrowing or when you need the money in an emergency. A line of credit is best if you want to lock in a low interest rate.

Step 5: Apply
Apply for the loan or line of credit. Be careful about signing up for application or appraisal fees. If you have good credit, you should not have to pay these fees to borrow against your home. With the appropriate steps, you’ll secure some cash — and maybe even use it to increase your home’s value.

Did You Know?
Some experts estimate that less than a third of home equity borrowing is used for investments, with the rest being used for debt consolidation, vacations, or purchases that depreciate quickly.
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Transcript

What are the advantages and disadvantages of having a home equity line of credit? First, a home equity line of credit offers a lot of flexibility. One, it has a very low payment, an interest only payment. That can also be a disadvantage depending on how you treat it. If things were to get tight at the end of each month and a surprise came about, what you’re required to make is going to be substantially lower than what a typical mortgage is. But keep in mind, if you make that minimum payment, you’re on a treadmill. You’re not going to get anywhere.

Also, it’s open-ended with simple interest. It allows you to deposit 100% of your income with confidence that you can get that money back out to pay your bills. What’s left over is sitting in there driving down the average daily principle balance, which drives down the amount of interest that you pay, and ultimately gets it paid off much, much faster than a mortgage.

A huge advantage with a home equity line of credit is no closing costs. Typically banks don’t charge any type of lender fees and they will even compensate you for your title fees. Now, it depends on what state you’re in and how large your loan is but if you’re around the 0,000 to 0,000 loan amount, you can expect the bank to pay all of your fees and not include them in loan like typical mortgage lenders do. We’re talking actually pay it on your behalf. A lot of banks don’t even require an appraisal. There’s never mortgage insurance with a home equity line of credit. It doesn’t matter if you’re borrowing 85, 90, or 100% of the value of your home. A home equity line of credit never has mortgage insurance.

In some of the disadvantages of having a home equity line of credit is really not the product itself. It’s really the person using the product is a disadvantage. What I’m talking about there is discipline. What are you doing with your money now? You’re putting all of your money into a checking account. All we’re asking you to do is to replace your checking account with your home equity line of credit and you’ll be just fine. It’s discipline. That is the disadvantage of having a home equity line of credit. It’s folks not actually following through on that. If you don’t follow through on it, it’s no better than having a mortgage. It’s not worse, but it’s no better.

Another disadvantage is if you actually do perform the strategy, you’re going to find that you’re going to have access to a large amount of equity pretty fast. What are you going to do with that equity? Are you going to leave it in there and continue to pay off your debts or are you going to cash out to go buy an S-Class Mercedes? You’re buying a liability, not an asset. I am an advocate of pulling money out of your home equity line of credit to buy things that are assets. In fact, very specific assets. Dividend paying assets.

Those are the disadvantages of having a home equity line of credit. There is a perceived disadvantage of having a home equity line of credit because the rates typically are variable meaning they can change at anytime and go up or down. The reason why I say that’s perceived, it depends on how you treat the home equity line of credit. If you treat it like it’s your checking and savings account, and your cash flow positive, you’re interest rate immune. What that means is, you’re actually reducing the principle much faster than the rise of interest rates. There are quite a few banks that offer fixed rate home equity lines of credit so you don’t even have to worry about that if you didn’t want to.

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< iframe size="425" height="355" src="https://www.youtube.com/embed/uRPfcoHs3ZQ?rel=0" frameborder="0" allowfullscreen > This video clarifies just what home equity is, describes the factors that raise or lower house equity, and also supplies a formula to calculate house equity.

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Understanding Home Equity

Description

Home equity is the marketplace worth of a home owner’s unencumbered interest in their genuine property—that is, the essential difference between the home’s reasonable market price as well as the outstanding balance of all liens regarding property. The property’s equity increases given that debtor tends to make repayments against the home loan stability, and/or since the property price appreciates. In business economics, house equity may also be called genuine residential property worth.
Technically, residence equity has actually a zero price of return and is perhaps not liquid. Residence equity management is the procedure for using equity removal via loans—at favorable, and often tax-favored, interest rates—to spend usually illiquid equity in a target that gives greater returns.
Home owners acquire equity within their residence from two sources. They buy equity using their down-payment, plus the main part of any payments they make against their particular mortgage. They also reap the benefits of a gain in equity whenever value of the property increases. Investors usually aim to purchase properties which will grow in worth, inducing the equity when you look at the residential property to improve, thus offering a return on their financial investment when the property comes.
House equity may serve as security for a property equity loan or residence equity line of credit (HELOC). Numerous home equity plans set a fixed duration when the individual can borrow cash, including 10 years. At the end of this “draw duration,” anyone are permitted to restore the line of credit. If the plan cannot enable renewals, the person will be unable to borrow more money when the period is finished. Some plans may necessitate repayment entirely of every outstanding stability at the conclusion of the period. Others may enable payment over a hard and fast period, for example, ten years. http://www.garguniversity.com Browse Ebook “Mind Math” from Dr. Garg

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