Facts About Debt Consolidation Home Equity Loans

What exactly is a debt consolidation home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous home equity loan. If you are considering consolidating your credit card, auto loan, and other unsecured debt into one lower payment then all of them combined, this may be the loan for you.

First, I would like to discuss the loan that we are talking about. A debt consolidation loan, by itself, works like this. Let’s say you have 8 bills for credit cards, an auto loan, and 2 small signature loans at a small lending institution. The total balance is $14,500 in debt. Your current payment is $426 every month. A debt consolidation loan will roll all these loans into one and stretch out the length of payment to 5 years. At current rates the new payment will be $246 per month.

Second, we will discuss the home equity loan. Just as it sounds, this is a loan against the equity in your home. If you have sufficient equity in your home, this kind of a loan can be easy to get as the creditor will use the home as collateral for the loan. If you owe $145,000 on your home and the value is appraised at $235,000, there is $90,000 in equity.

However most equity loans are only allowable on up to 70% of the value. Using the same figures, this makes the value of your home as far as the bank is concerned for the loan, $165,000. So you would be able to get a loan of $20,000. This loan would be for a term of 5 to 20 years and could considerably reduce your monthly outlay. The same $14,500 borrowed on a ten year debt consolidation home equity loan, would have repayments of $152 each month.

With debt consolidation you will pay less but usually for a longer period of time. If you are in desperate need of lower payments in order to survive, this can be a good deal and save your credit rating.

One of the pitfalls of the debt consolidation loan is credit qualification problems. If you have already been experiencing a hardship before you finally applied for the loan, this can cause you to pay a much higher interest rate. In some cases, you may not be able to qualify for the loan at all. The trick is to apply for the loan if you see the trouble coming, not after you have been in the middle of personal financial hardship for months.

A debt consolidation loan can be a good thing and save you much hardship and heartache. However, you must be aware that the debt consolidation loan that is using your home equity as collateral can continue to take a big chunk out of the equity for a long time. If home values fall, you could be in debt for more than your home is worth.

Just use good judgment and think wisely before using your home equity to consolidate debt. Always seek the advise of a financial professional to help you make a wise lending decision.

Home Equity Loans Give Financial Acuity

Suppose you have obtained a first mortgage worth ₤150,000 on your property. You have paid ₤70,000 in last 5 years. Your home value has also increased to ₤300,000 in these 5 years. So your home equity is ₤1, 50,000 (₤300,000 – ₤70,000). Now if you take a home loan worth ₤2, 30,000 keeping the home equity as security for the debt, then such loans are called home equity loans.

Equity is the difference between how much the home is worth and how much you owe on the mortgage if you have more than one on the property. Home equity loans are second mortgages that let you turn equity into cash, allowing you to spend it on home renovation and improvements, business extension, availing children higher education, debt consolidation, or other expenses.

There are many benefits of home equity loans. Followings are some:

oLow interest rate home equity loan

oBorrow up to 125% of your home value (amount ranges ₤3, 000-₤75, 000)

oFlexible repayment term (term of 5to 25 years)

oMake any use of the loan amount

oFree online advice for home equity loans

oLower interest rates

Home equity loans are quite useful, and have several advantages over other types of loans, such as credit card loans or more traditional secured loans. The biggest advantage is that the interest on home equity loans is tax deductible. The interest rates on home equity loans are already pretty competitive, but the addition of the tax deduction makes them pretty hard to beat.

Home equity loan is risk less loans. The lenders use the borrower’s home as collateral security. Home equity loans allow users to access funds depending upon the borrower’s requirements in varying amounts up to their credit limit.

For this cause, there are innumerable lenders present online. With the respective terms and conditions, these lenders are going in for alluring borrowers one way other. Availability of home equity loans online has made availing rather time-saving and instant at processing.

Understanding the Home Equity Loan Process

What is Home Equity?

One of the benefits of becoming a homeowner is the gain of home equity. Home equity is the difference between the value of your property and the balance you owe on the mortgage. The equity built in your home is essentially your money. For example, let’s say you took out a $175,000 mortgage (which for this case is the value of your home). After the down payment and about seven of the fifteen years paying your mortgage, you have $85,000 left to pay on the mortgage. In those seven years, your home has appreciated in value. It is now worth $200,000. The equity you have built would be $115,000. Home equity, after the property is sold, is like money in the bank.

Using Home Equity through Loans

There are times in the life of a homeowner that new financial opportunities arise. Perhaps you are sending your daughter to college and need money for tuition, or maybe you are looking at renting a vacation home for the summer. You may need to build an addition onto the house for a new addition to the family. Whatever the reason, lenders have made available a few loans that allows you to borrow on your home equity. These home equity loans sometimes offer a better value than your ordinary conventional loan. There are two basic types of home equity loans: a closed home equity loan and a home equity line of credit (HELOC). A closed home equity loan works much like a conventional loan in that the money is given up front in its entirety. The result is monthly payments for a duration of time. A HELOC, on the other hand, opens a revolving line of credit for the borrower. While it works much like a credit card, the interest does not compound over time. The lender and borrower agree to a set-borrowing fee with a drawing period. During this period, the borrower can take out at any time the amount of money needed as long as it doesn’t exceed the limit. The borrower only pays back what is taken out. A HELOC gives the borrower the power to dictate cash flow according to his needs.

Benefits of Home Equity Loans

Home equity loans offer benefits that other loans can’t. These benefits usually come in the form of interest. While the interest rates are usually set lower than the fixed-rate conventional loans, they are also tax deductible. The tax benefits with a home equity loan make it a popular choice for those interested in property investment. Because a HELOC is a little more “user friendly,” it is the more popular choice. When searching for your home equity loan, ask your lender about their rates and services. A word of caution, a home equity loan uses the equity built in your home as collateral. In other words, if payments start to fall behind, your house may face foreclosure on account of default.

Whatever the reason, whether making home improvements, paying tuition, or working on property investments, home equity loans offer a good choice to finance such an endeavor.