Finance Brand Blog asked:


Bad Credit Home Equity Loans are a Good Thing

If you are in the unfortunate situation of looking as loans for people with bad credit, take heart. You are not alone. More and more people need to take out loans for some financial need, and one possible source is a bad credit home equity loan.

People end up with a bad credit rating for a myriad of reasons. Late payments and bankruptcy are obvious factors. Not so obvious is the debt to income ratio factor. If you happen to have college loans that are around $20,000 and marry someone with the same amount of college loan debt, you both may now have bad credit. Even if you own a home and have a pristine credit history a large loan taken out for an emergency will greatly affect your credit score. If your credit score is lower than you like, the good news is that it doesn’t have to stay that way forever! There are many loans for people with bad credit and a bad credit home equity loan is one place to start.

A home’s equity is the current fair market value of the home, minus any mortgage payments left to be paid. What this boils down to for a lender is what they can get for the home if they have to seize it from the owner for failure to pay. Even with a low credit score bad credit home equity loans are available for up to 90% of the equity in the home. Most lenders are comfortable giving equity loans for people with bad credit. Since there is collateral involved finding such a loan shouldn’t be a problem. The tricky part will be finding a bad credit equity loan with an interest rate that you’re comfortable with.

Reasons behind taking a bad credit home equity loan vary greatly. Currently, homeowners are opting to take their home’s equity and then reinvest it in their home through updating and remodeling. Or, maybe someone is able to pay off a sizeable amount of credit card or school loan debt with a home equity loan. Not only will it be a relief to pay off all your other creditors, your interest rate will go no where but up!

If you’re looking at loans for people with bad credit and own a home, a bad credit home equity loan is a good option. Interest rates will be lower than for any other loan you could get and it’s relatively easy for a homeowner with any credit rating to get one of these loans. Regardless of your reasoning behind getting a bad credit home equity loan, be careful as to whom you choose as your lender. Read the fine print and plan a strategy to increase your credit score with the equity loan. Your financial security will increase and your credit score will thank you.

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MARY

Bruce Owens asked:


Home equity loans can allow Canadian homeowners to leverage the gains they made in what was until recently a red-hot housing market into investments in other sectors. Home ownership, which was once the key fundamental to Canadians’ wealth accumulation strategies, while still important, will likely take a back seat as a strategy in the near term as investment savvy home owners shift their accumulated wealth into other markets. Leveraging built up home equity is a highly advantageous method of making this switch in investment tactics.

The most recent economic forecasts indicate that Canada’s overall housing market has settled into what will be a period of slow growth. Home owners who saw the equity in their homes grow by leaps and bounds as Canada enjoyed its longest sustained housing boom since the Second World War are now sitting on substantial capital that is locked up in their home. But the return on this capital will only grow moderately over the next several years and it is not clear that gains in housing prices will necessarily outstrip inflation.

The latest view from economists at the TD Bank Financial Group is that sales of new and existing homes are likely to continue to decline in the near term and housing prices will only increase modestly. TD’s forecast is that “sales are likely to continue to decline in the coming quarters and price growth will slip to 2% on a national average basis in 2008 and rise only to 3.5% in 2009.” They note that this national average will vary by regional markets, with some local markets that saw the biggest run ups in housing prices - such as those in Alberta and British Columbia - experiencing a drop in housing prices as regional markets adjust. But, they predict, “Most markets will see low to mid single-digit growth.”

The Financial Post reports that most leading economist are expecting the Bank of Canada “to keep interest rates at 3% in 2008 before hiking them in 2009 as inflation becomes more of a concern and the U.S. economy picks up.” Of course, as Canada’s central banker hikes its lending rate, banks, trust companies and other financial institutions will raise their prime rates in due course.

With current low interest rates, homeowners looking for more continued and substantial growth in their existing assets can take out a home equity loan for investment purposes and purchase a risk balanced investment portfolio that is highly likely to carry a much better return than the moderate housing price increases that are forecast for the rest of 2008 and into 2009. The bonus is that the interest paid out on a home equity loan taken out for investment purposes is tax deductible. Effectively, the tax savings a typical homeowner/investor is likely to get will in most instances offset a large portion of the borrowing costs. If gains on the investment outstrip, as they should, the moderate gains forecast for housing purposes, homeowners who leverages their home equity in this manner will see real growth in their overall assets.

An abundance of caution should of course be used when leveraging your home equity in this manner. Ensuring that the investment portfolio you choose is well balanced is a key. Working with an experienced and knowledgeable financial planner is highly recommended, as is working with a mortgage broker to access the best available rates and terms for a home equity loan while interest rates remain at their current low level.



WENDELL

Ray Tolley asked:


In this article, we’ll cover the benefits and disadvantages of home equity loans, home equity lines of credit (HELOCs) and personal loans. Whether you’re looking for funds to finance a major expense or simply pay down consumer debt, this article can help you decide what type of financing is best for you.

Home Equity Loan

* Best for: Major, unexpected expenses or large investments.

* Not for: Ongoing or smaller expenses.

How it works: A home equity loan is like a mortgage - the borrower is given a lump sum of money up front and begins paying interest and principal payments right away to work off the debt. The amount of the loan extended to the borrower is based on how much equity has increased in the home after appreciation and mortgage payments.

* Pro: Home equity loans typically offer a lower, fixed interest rate than HELOCs and personal loans. This benefits the borrower over the term of the loan as well as in the short term.

* Con: Borrowers have to pay interest on the full balance right away.

Home Equity Line of Credit (HELOC)

* Best for: Ongoing expenses like major renovations, college tuition or having a baby.

* Not for: Single, major expenses.

How it works: A home equity line of credit is secured by the equity in your home, and you can draw on it as you would using a credit card or savings account. Typically, the rate is adjustable - meaning it can be changed periodically depending on financial market trends - and you’ll make interest payments on what you borrow until the term of the line of credit is over.

* Pro: You only pay for what you borrow, and these loans are often easier to qualify for and faster to obtain than home equity loans.

* Con: The interest rate is adjustable and often higher than a home equity loan. When shopping for a home equity line of credit, look for a low permanent rate.

Personal Loan

* Best for: Small single expenses like a new car or small business investment.

* Not for: Ongoing living costs, major projects like home renovations.

How it works: A personal loan is a one that is offered by the lending institution and is often secured by the piece of equipment (e.g. a car) or property (e.g. business) that you’re using the loan to purchase. Typically, personal loans are smaller and can often be obtained in the form of a line of credit.

* Pro: Simple application process without sacrificing home equity or risking the home itself.

* Con: Without the security of home equity, the interest rates on a personal loan are often higher, so it is advantageous to pay off the loan as quickly as possible.

In short, whether you obtain a home equity loan, a HELOC or a personal loan will depend on why you need to borrow the funds, the kind of interest rates you can afford and your own current financial situation.

Remember, always shop around for the lowest interest rate! Doing so can save you hundreds - if not thousands - of dollars over the life of the loan.



DELMAR

Jack Krohn asked:


Millions of Americans are up to their ears in debt. They struggle every month just to meet the minimum payment which just prolongs the debt. Credit cards have high finance fees. Hence, it is difficult to pay down balances. In most cases, the minimum payment barely covers the finance charges. This makes it difficult to reduce the credit card balance.

One approach for eliminating or reducing debts involves acquiring a debt consolidation loan. Although debt consolidation loans will not miraculously eliminate your debts, these loans make is possible to reduce your debts faster.

In 2005 the value of home equity across the US was $11.3 trillion. The percentage of home ownership in 2005 was 69% down slightly from the record 69.2 % in 2004. Almost 124 million Americans own their own home. There is plenty of money available to lend.

If you obtain a debt consolidation loan, all your credit balances are lumped into one loan. Furthermore, debt consolidation loans have reasonable interest rates. This enables you to become debt free within a few years.

There are various ways to obtain a debt consolidation loan. Individuals with good credit may qualify for a personal debt consolidation loan. If you own a home, it may be possible to get approved for a home equity loan. Home equity loans are ideal because the rates are low and the terms fixed. Usually, homeowners are able to repay the money in five to seven years - sometimes less.

Just beware that home equity does not automatically go up every month like some would have you believe. Several factors far beyond your control determine the value of your home. Just within the last six months or so the value of homes in some parts of the country dropped by 10% in a month.

Before you get a home equity loan you should know these facts.

• They are secured by a second deed of trust on your house.

• If your financial situation changes your home could be at risk of foreclosure.

• Having to make two payments on your home can be a lot of financial strain.

• A lot of unscrupulous lenders could care less.

• Keep your eyes open to what the local housing market is doing. Just recently many areas experienced a 10% decline in values in one month causing many homeowners to owe more than their home was worth.

It is essential to use the funds wisely and borrow only what you can afford to payback. Most Americans who use their home equity to pay off their credit card debt refuse to change their habits and lifestyles, and actually see their zero-balance cards as an invitation to go shopping - perpetuating the cycle.

Before you put your home at risk with a second mortgage understand the risks. Explore all the possibilities. Just because a home equity loan for debt consolidation seems so easy to do and easy to get, doesn’t make it the right choice for you. Don’t press the EASY button.



MARION

Terry Edwards asked:


Have you noticed that every time you watch your favorite TV show, a home equity loan commercial seems to pop up? Or, you rush out to your mailbox and discover yet another offer wanting you to take out a home equity loan?

Without question, home equity loans have exploded in popularity over the past few years. It has become the way of getting the money you need to solve your financial needs. But, many people don’t fully understand just what they are. Here are some of the basics on what these types of loans are all about.

In simple terms, a home equity loan is money that you can borrow by using your home as collateral. The amount you can borrow is based on the current value of your home, less the amount you still have due on your original mortgage.

For example, let’s say you have a home that is valued at $500,000. Your current loan balance is sitting at $400,000. You could possibly obtain a loan for $100,000.

The total loan amount will be determined by variables such as your current credit history, etc. Keep in mind though, even if you currently have some credit issues you’re dealing with, a bad credit home equity loan is not that difficult to get. It just takes a little more effort in finding.

You can use the funds for whatever you wish. This can be both a positive and negative though. Here’s why.

Home equity loans are great for uses such as home improvement projects, college expenses, medical bills, and of course, bill consolidation. Getting out from under debt is a major reason that people get a home equity loan.

But, people will also borrow money on the equity in their homes for items like a new car, appliances, exotic vacations, or other luxury items. Well, it’s your money and you can certainly use it as you see fit, but be careful.

Make sure that you can afford the monthly payment for years to come. Since a home equity loan is secured by your home, if you go into default on the loan, the lender can take possession and sell your home to satisfy the debt.

Check out several offers before making a final decision to sign any loan agreement. Take your time and you’ll be fine. Getting the right home equity loan for the right reasons could very well be the solution you’re looking for.



DUANE

Lesley Lyon asked:


Home Equity Loan in terms of common man is, by using an individuals home he can borrow money. In this case the property is used as a collateral guarantee for the money received. It has been understood that the individual has to repay the debt within a time frame, and if he fails to do so the money lender can sell the collateral and take his money back. So, in this case the equity in the home is used as collateral. If the debt has not been paid the concerned party will be forced to lose his home. If the loan amount has been paid, in full then the property will be the buyers. Equity can be explained as the difference between the worth of the home and how much loan exists on the mortgage and the banks will lend money against the equity only. This type of loan is taken for the purpose of major home repairs or improvements, education expenses, wedding expenses, medical expenses etc.

Home Equity loan can be classified into two different types as, Traditional Home Equity Loan and Home Equity Line of Credit and these are also known as second mortgages, as they are safe by the security of property. These types of loans are returned in a short span of time than the first mortgage.

Traditional Home Equity Loan is also known as closed end home equity loan which means the money borrowed must be returned or repaid within a predetermined period. In this type, the interest will start to accumulate immediately after the money has been given. And at the time of closing a lump amount of money can be borrowed and will not be able to get further amount. The loan amount will be determined by analyzing the credit history, income and value of the collateral. For this type of loan they have a specific period say up to fifteen years.

Home Equity line of credit will offer the borrower a cheque book or a credit card which can be made used to borrow money against the home equity when and how often the concerned party requires the amount. Until a purchase is made against the equity the interest will not begin to accumulate. This type is also known as open end home equity loan. The period fixed generally to repay the loan is over thirty years at a varied interest rate.

Generally home equity loans have some specific fees and some of them are Evaluation fees, Inventor fees, Stamp Duties, Concluding fees, Arrangement fees, early pay-off, Surveyor or Conveyor or valuation. In some cases, some of them may be ignored. This can be increased or decreased if the concerned party has his personal surveyor to examine the property. The fees differ from loan to loan so that the parties concerned must have a clear picture in the beginning itself. This type of loan helps in tax savings because the interest paid against the home equity loan is tax-deductible.



JAMIE

Lesley Lyon asked:


It is difficult to manage the finances with the ever-increasing default rates and delinquencies. The prospect to having to pay many bills of different amounts every month from the existing loans to medical expenses, credit cards and so on can be of great pain. It is not only difficult to have a track of all the expenses and bills but also the cumulative costs can sum up to a big amount. This is where the home equity loans might come to the rescue, as it helps to pay only one bill every month.

Home equity loans may help get the finances organized and also to plan accordingly. Home equity loan makes debt consolidation possible. Home equity loan lets the person to have the flexibility of planning ahead for other living needs through debt consolidation. Outstanding loan amounts, credit card bills and other kinds of liabilities may involve paying high interest rates and expenditure. A home equity loan helps in paying off the entire debts and also allows keeping some cash in hand. This leaves the person with high earning balance, which is got after the deduction towards monthly repayment of home equity loans. Hence home equity loans are said to be the best method for consolidating loans with higher interest rates.

Home equity loan provides an opportunity for the house owner to borrow money by producing collateral in the form of pledging the house. The loan is obtained without any strain even if the applicant has a bad credit because the lender views it very safe to provide loans having the house as collateral. The money borrowed is also more making it very useful to clear off debts with higher interest rates.

The home equity loan comes with a lower interest rate than any other unsecured loans. The repayment term and the amount to be paid every month is known and budgeting can be done accordingly as it can be got with a fixed rate of interest. The home equity loans repayment term ranges from five years to twenty years. It provides the flexibility to consolidate debt and fits the budget. If the debt consolidation balance is more then the person can go for a longer repayment period plan as it will provide lower monthly payments so that other living expense needs can also be met along without difficulty.

Home equity loans are easy to obtain. To qualify for home equity loans a reasonable credit score is required along with a sufficient earning potential to handle the additional debt. Since a home equity loan is a second mortgage another payment will be added to the debts. With the help of debt consolidation the second mortgage with a lower payment will replace all the other debts making the same amount of debts to be handled easily. Home equity loans come with a adjustable rate mortgage or fixed rate mortgage. It is upto the person to decide the kind he would need. The person can get even more amount of equity loan than the amount required for debt consolidation.



BERNARDO

Terry Edwards asked:


While home equity loans have been popular in recent years the question is, are they right for you and your situation? The answer really depends on how you plan on using the money.

A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. It is an excellent source of funds as it can free up the equity you’ve built up in your home, and you can get the cash to use for any purpose you desire.

A home equity line of credit or a home equity loan is a second mortgage that many people take advantage of to pay off debts, or do that big home improvement project they’ve been wanting to do. But, it is also a serious transaction, and you should know that you will be putting up your home as collateral to secure the loan. If you default in making payments the lender has the ability to take over the loan and you can lose your home.

Another benefit of a second mortgage or home equity loan is that you can deduct the interest expense on your taxes. It is much better than having a credit card because it has a lower interest rate and it is tax deductible. That’s an important point to keep in mind.

Applying for a mortgage home equity loan online is quick and easy, and very convenient since you can do it right from home any time day or night. If you’re not sure how much you currently owe on your mortgage, talk with your lender and they’ll be able to help you out.

It is also important, as in any credit transaction, to compare the total costs of the loan to other types of credit available to the consumer. When you compare home equity loan offers compare all fees for the loans you consider, not just the interest rate or annual percentage rate.

Poor credit or good credit, a debt consolidation second mortgage or home equity loan is easily obtainable in nearly any situation. Lenders are more willing to loan you the money even with poor credit because your home is used for collateral. If you decide that this is for you, shop around for the best interest rate and lowest closing costs. Used properly, a home equity loan can help you get your household finances in better shape.

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PERRY

DavidB asked:


Many people do not realize that a home equity loan is available to many homeowners. However, some take advantage of them and get one whenever they can qualify. It just really all depends on your home and the equity in it as to whether or not you may or may not qualify for one. There are many places that offer loans against the equity in your home, and you may or not be aware of them.

Why you should get a Home Equity Loan?

There are so many reasons that you might want to take out a home equity loan. Maybe you need to do some home improvements around the house. On the other hand, perhaps you are ready to take that dream vacation that you have worked so hard for. Another reason that many take out a loan against the equity in their home is for debt consolidation. You will find that this is the most popular reason for this type of loan. Simply to be debt free. Taking out a loan and paying off your debt, so that you only have one single payment that is lower to pay every month is a great reason in itself.

Where can I get a loan against the equity of my home?

Most banks or mortgage companies that offer second mortgages are known for home equity loans. Many of them will be willing to look at your information to in return give you the most for your equity that you have built up in your home.

How much will my loan be?

If you are like everyone else, chances are that you are wondering just how much of a loan you can get against the equity of your home. Well, that really all depends on the equity that you have built up in your home and how much of a loan you need. Maybe you do not need the full amount that you are offered, or perhaps you need a little more. Like stated earlier, this depends on the amount of equity as to how large or small the loan will be.

Something to Keep in Mind

If you just bought your home, and you have not made many payments on it yet, then chances are you will not qualify for a loan against the equity in your home. The reason for this is you have to make payments for a while and give the equity a chance to build up. You cannot go and get a loan against the equity in the same day or month you start paying on your home. Simply because there is, no equity built up at that time. You should at least pay on your home for a few years before you try to qualify for this type of loan.

As you can see, the home equity loan is one that can help you out if you were to get in a bind. You can get one to consolidate your debt, or to just help financially.



ADAN

Chris Navi asked:


What is a home equity loan?

Home equity is a person’s financial stake in his or her home. A home equity loan allows you to borrow up to 125 percent of the appraised value of your home, less any existing mortgages. Consumers generally take out home equity loans for shorter periods than their original mortgages (five to 15 years versus 25 or 30).

Home equity loans have become increasingly popular in recent years. Low interest rates (typically higher than first mortgages, but not as high as other borrowing options) and the interest deduction are two reasons for this, but you should consult a tax advisor for the tax implications in your situation.

Lumps versus lines

There are two types of home equity loans: term (or closed-end) loans and lines of credit (open-end loans). The former is a one-time lump sum paid off over a predetermined time period, at a predetermined rate of interest. A home equity line of credit (HELOC) sets a maximum amount for the line and lets the borrower withdraw money up to that point, as he or she needs it. There are minimum requirements for paying back the principal — both in terms of time and amount — but the borrower can overpay (and then dip back in up to the maximum again). The interest rate on a HELOC is usually variable.

Is it wise to use a home equity loan to invest in securities?

Not necessarily. But, if you are financially stable, are not reliant on investment returns to cover your mortgage payments and are a knowledgeable investor, the home-equity gamble might be a way to secure low-interest money to use to invest in securities. Otherwise, it could be too much of a risk.

The risk is this: When you buy securities with mortgage money, the funds with which you’re investing are not your own. Mortgage-money investments that go sour take the collateral supporting the loan — the house — down with them. That’s a sad ending for the equity you spent your adult lifetime amassing. There are other options available if you want to borrow money to invest in stocks, and they don’t involve the risk of losing your home. Talk with your financial advisor to find out more.

Indeed, the NASD (the National Association of Securities Dealers), the world’s largest private-sector securities regulator, is so concerned with the practice that it is taking “enforcement actions” against brokerage firms that recommend this source of funds for consumers looking to invest.

If you’re still game, you need to look at the specifics on both sides of the transfer. For example, if the interest rate on your home equity loan is four percent, you’ll want to make sure the investment you’re moving to promises a return that’s at least a couple of points higher. If you’ve got your eye on growth stocks, remember that growth stocks offer no guarantee of growth. Government-insured programs, while not offering the same potential for returns, might be a safer bet.

Before making any investment decision, it’s wise to discuss the specifics of your own situation with a financial advisor.



BROCK