Home equity loans loan interest rates

Also known as second mortgage, a home equity loans loan interest rates is usually viewed by home owners as a tool through which they can borrow money from lenders, by leveraging the equity in their homes. Thus, using a home equity loan option, by pledging your home as the collateral, you can borrow money. Now, two things need explanation here equity and collateral.

Equity is the difference between your homes current appraised value and how much you owe on the mortgage. To illustrate, lets say five years ago, you purchased a house whose current appraised value is $300,000. By paying all the monthly payments of your mortgage faithfully during the last five years, you now owe $150,000. Your present home equity loans loan interest rates will be the difference of these two values i.e. $150,000.

Collateral is the property that you pledge so as to assure the lender that you will repay your debt. That means, if you somehow fail to repay your debt, the lender will be all too happy to sell off the collateral, which in this case happens to be your home, and will get its money back. Thus, you can see that this loan provides benefits but also pose a few major pitfalls.

Fixed rate loan it provides you a single lump-sum amount, which is to be completely repaid over a set time period and at a fixed income rate. Thus, your monthly payment remains same throughout the life span of the loan.

Home equity line of credit here, a borrower is pre approved for a certain spending limit and you can withdraw money from your credit line as and when you need it, as long as its within that spending limit. It works more or less as a credit card and sometimes even comes with a credit card! Here, the home equity loans loan interest rates is not fixed and therefore, the monthly payment will vary depending upon the amount that you owe at that time as well as the current interest rate.

There are a variety of ways people use their home equity loan, some of which include

Making improvements and up gradations in the home. If you are going to use the loan for home improvement, make sure it actually increases the value of your home and doesnt turn out to be a mere cosmetic exercise. For example, a remodeled bathroom will generally add some value to a house, but a small swimming pool may appear valuable only to the owner and not to the market determining the resale value.

Paying for childrens college education is another popular reason for taking a home equity loans loan interest rates. However, before moving ahead along this road, always probe other options such as student loans. Also, if a borrower is nearing retirement, better avoid this route.

Home equity loans loan interest rates is also taken to consolidate other debt but there is a dark side to it. If once you indulge in such an act, you might run up huge credit card balances again and this time you will be left with a bigger debt and no equity!!!!!

These loans are also used to pay off unexpected medical bills and to finance some big ticket purchases.

Always keep in mind, when you are taking a home equity loans loan interest rates, you are putting your most prized and valuable asset, your home, on the line. And there are a whole lot of abusive and exploitative lenders out there who want to target you and grab your equity. Keep in mind the following practices that some lending sharks frequently use to trap you:

Equity Stripping:

You need money but you are not earning enough each month. However, you own a house and thus you have equity. A lender tells you that you can get a home equity loan even if you dont have enough monthly income, just pad your income in your loan application form and your loan will be approved.

Avoid doing any such thing, because once you have taken the loan and defaulted on payments, the lender will simply foreclose, stripping you of your equity you may have spent years building. So, no matter what anyone says, if you dont have enough income to make monthly payments, dont take a loan.

Loan Flipping:

You have a mortgage for years. A lender offers to refinance it, thus making extra cash available to you. You agree to refinance your loan. This is called flipping each time you refinance, you will be charged high points and high fees. Soon, you will realize that you do have some extra money but a whole lot more debt stretched over a longer time span. Plus you have paid a whole lot of additional refinancing costs and fees.

Balloon Payment: Some loan offers look great at the beginning, with very low monthly payments at the start of the loan term. Read the fine print carefully. Usually what happens in such cases is that you have to repay only interest each month. Then at the end of the loan term, the entire principal is due in one lump sum. This is called Balloon Payment. If you fail to make the balloon payment, or refinance, you will lose your home. So, either avoid such balloon payment loans or make sure you are not caught surprised at the end of the loan term.

Home Improvement scam:

A contractor offers to resurface the driveway and install a new roof. He says he knows a good lender and will arrange finance. You allow him to

begin work. After some time, contractor comes with a lender. The lender asks you to sign a lot of papers so as to finance your home improvement. You sign, only to realize later that you have signed a home equity loan with high interest rate, points and high fees. Also, now that you have signed, the contractor seems least interested in completing the work to your satisfaction.

Credit Insurance Benefit Pack: The lender, while finalizing everything, asks you to sign papers which include charges for credit insurance and other such benefits you dont want. The lender says that insurance comes with loan and if you dont want insurance, your loan will be reconsidered. Thus, you sign and ended up paying extra for a product you dont need.

Servicing Abuses:

The lender may start charging additional amounts such as late fees even when you have been paying everything on time, legal fees which you dont understand and escrow for taxes adding these to the amount you owe and increasing your monthly payments. When you ask for a payoff statement, you get a statement which is either inaccurate or incomplete. The lender makes it impossible for you to find out how much you owe and how much you have paid. Amid all this confusion, you may end up paying more than you owe.

Thus, before deciding on a particular offer, always shop around to find the best deal and have a list of dos and donts with you.

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