 |
Nationwide Home Mortgage Loan Company |
Questions?
Call us Toll Free: 866-535-6077 |
 |
What is a Home Equity Line of Credit?
Is a Home Equity Line of Credit (HELOC) Right for You?If you need to borrow money, home equity lines may be one useful source of credit. Initially at least, they may provide you with large amounts of cash at relatively low interest rates. And they may provide you with certain tax advantages unavailable with other kinds of loans. (Check with your tax adviser for details.) |
 |
What is a home equity line of credit |
|
|
At the same time, home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments.
Those loans with a large final (balloon) payment may lead you to borrow more money to pay off this debt, or they may put your home in jeopardy if you cannot qualify for refinancing. |
|
Also, if you sell your home, most plans require you to pay off your credit line at that time. In addition, because home equity loans give you relatively easy access to cash, you might find you borrow money more freely.
Remember too, there are other ways to borrow money from a lending institution. For example, you may want to explore second mortgage installment loans. Although these plans also place an additional mortgage on your home, second mortgage money usually is loaned in a lump sum, rather than in a series of advances made available by writing checks on an account. Also, second mortgages usually have fixed interest rates and fixed payment amounts.
You also may want to explore borrowing from credit lines that do not use your home as collateral. These are available with your credit cards or with unsecured credit lines that let you write checks as you need the money. In addition, you may want to ask about loans for specific items, such as cars or tuition.
How much money can you borrow on a home equity credit line?
Depending on your creditworthiness (your income, credit rating, etc.) and the amount of your outstanding debt, home equity lenders may let you borrow up to 100% of the appraised value of your home minus the amount you still owe on your first mortgage. Ask the lender about the length of the home equity loan, whether there is a minimum withdrawal requirement when you open your account, and whether there are minimum or maximum withdrawal requirements after your account is opened. Inquire how you gain access to your credit line -- with checks, credit cards, or both.
Also, find out if your home equity plan sets a fixed time -- a draw period -- when you can make withdrawals from your account. Once the draw period expires, you may be able to renew your credit line. If you cannot, you will not be permitted to borrow additional funds. Also, in some plans, you may have to pay your full outstanding balance. In others, you may be able to repay the balance over a fixed time.
What is the interest rate on the home equity loan?
Interest rates for loans differ, so it pays to check with several lenders for the lowest rate. Compare the annual percentage rate (APR), which indicates the cost of credit on a yearly basis. Be aware that the advertised APR for home equity credit lines is based on interest alone. For a true comparison of credit costs, compare other charges, such as points and closing costs, which will add to the cost of your home equity loan. This is especially important if you are comparing a home equity credit line with a traditional installment (or second) mortgage, where the APR includes the total credit costs for the loan.
In addition, ask about the type of interest rates available for the home equity plan. Most home equity credit lines have variable interest rates. These variable rates may offer lower monthly payments at first, but during the rest of the repayment period the payments may change and may be higher. Fixed interest rates, if available, may be slightly higher initially than variable rates, but fixed rates offer stable monthly payments over the life of the credit line.
If you are considering a variable rate, check and compare the terms. Check the periodic cap, which is the limit on interest rate changes at one time. Also, check the lifetime cap, which is the limit on interest rate changes throughout the loan term. Ask the lender which index is used and how much and how often it can change. An index (such as the prime rate) is used by lenders to determine how much to raise or lower interest rates.
Also, check the margin, which is an amount added to the index that determines the interest you are charged. In addition, inquire whether you can convert your variable rate loan to a fixed rate at some future time.
Sometimes, lenders offer a temporarily discounted interest rate -- a rate that is unusually low and lasts only for an introductory period, such as six months. During this time, your monthly payments are lower too.
After the introductory period ends, however, your rate (and payments) increase to the true market level (the index plus the margin). So, ask if the rate you are offered is "discounted," and if so, find out how the rate will be determined at the end of the discount period and how much larger your payments could be at that time.
What are the upfront closing costs?
When you take out a home equity line of credit, you pay for many of the same expenses as when you financed your original mortgage. These include items such as an application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow). These expenses can add substantially to the cost of your loan, especially if you ultimately borrow little from your credit line. You may want to negotiate with lenders to see if they will pay for some of these expenses.
What are the continuing costs?
In addition to upfront closing costs, some lenders require you to pay continuing fees throughout the life of the loan. These may include an annual membership or participation fee, which is due whether or not you use the account, and/or a transaction fee, which is charged each time you borrow money. These fees add to the overall cost of the loan.
What are the repayment terms during the loan?
As you pay back the loan, your payments may change if your credit line has a variable interest rate, even if you do not borrow more money from your account. Find out how often and how much your payments can change. You also will want to know whether you are paying back both principal and interest, or interest only.
Even if you are paying back some principal, ask whether your monthly payments will cover the full amount borrowed or whether you will owe an additional payment of principal at the end of the loan. In addition, you may want to ask about penalties for late payments and under what conditions the lender can consider you in default and demand immediate full payment.
What are the repayment terms at the end of the loan?
Ask whether you might owe a large payment at the end of your loan term. If so, and you are not sure you will be able to afford the balloon payment, you may want to renegotiate your repayment terms. When you take out the loan, ask about the conditions for renewal of the plan or for refinancing the unpaid balance. Consider asking the lender to agree ahead of time and in writing to refinance any end-of-loan balance or extend your repayment time, if necessary.
What safeguards are built into the loan?
One of the best protections you have is the Federal Truth in Lending Act, which requires lenders to inform you about the terms and costs of the plan at the time you are given an application. Lenders must disclose the APR and payment terms and must inform you of charges to open or use the account, such as an appraisal, a credit report, or attorneys' fees.
Lenders also must tell you about any variable-rate feature and give you a brochure describing the general features of home equity plans.The Truth in Lending Act also protects you from changes in the terms of the account (other than a variable-rate feature) before the plan is opened. If you decide not to enter into the plan because of a change in terms, all fees you paid earlier must be returned to you.
Because your home is at risk when you open a home equity credit account, you have three days to cancel the transaction, for any reason. To cancel, you must inform the lender in writing. Following that, your credit line must be cancelled and all fees you have paid must be returned.
Once your home equity plan is opened, if you pay as agreed, the lender, in most cases, may not terminate your plan, accelerate payment of your outstanding balance, or change the terms of your account. The lender may halt credit advances on your account during any period in which interest rates exceed the maximum rate cap in your agreement, if your contract permits this practice.
 |
Articles |
 |
|
MM_XSLTransform error. http://www.lendingtree.com/rss/ARSS.aspx?rss=Using-your-home-equity-rss.xml&afid=cj&aid=10499358&pid=1762781&sid= is not a valid XML document. Non-static method DOMDocument::loadXML() should not be called statically, assuming $this from incompatible context in file http://www.lendingtree.com/rss/ARSS.aspx?rss=Using-your-home-equity-rss.xml&afid=cj&aid=10499358&pid=1762781&sid=. <?xml version="1.0" encoding="UTF-8"?>
<rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/">
<channel>
<title>Using your home equity</title>
<description>
</description>
<link>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Seniors/Using-your-home-equity.aspx</link>
<language>en</language>
<lastBuildDate>Thu, 28 Aug 2008 16:33:42 EST</lastBuildDate>
<copyright>Copyright: (C) LendingTree, LLC</copyright>
<item>
<title>Giving your kids a start with a home equity loan</title>
<description>Drawing on your home's equity can be a great way to give your kids a financial boost. But don't forget your own future needs.</description>
<link>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Using-your-home-equity/Giving-your-kids-a-start-with-a-home-equity-loan.aspx</link>
<pubDate>Mon, 7 Jan 2008 10:30:01 EST</pubDate>
<category>Using your home equity</category>
<guid>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Using-your-home-equity/Giving-your-kids-a-start-with-a-home-equity-loan.aspx</guid>
<content:encoded xmlns:content="http://purl.org/rss/1.0/modules/content/"><![CDATA[
Giving your kids a start with a home equity loan
Drawing on your home's equity can be a great way to give your kids a financial boost. But don't forget your own future needs.
<p>Your child got into the college of her dreams, complete with a great dorm room. But how is her college education experience treating you? The cost of sending a child to school can be an overwhelming burden to the parents' finances. If you're a homeowner, dipping into the equity you amassed in your home while your kids were growing up might be the ticket for covering the high cost of education. Or maybe you'd just like to give your adult kids a leg-up, with a down-payment check for their first home. <br />
<br />
<strong>What is a home equity loan?</strong> <br />
Equity is the difference between your home's appraised -- or fair market -- value and your outstanding mortgage balance (if any). A home equity loan allows you to borrow up to 80 percent of the value of your home, less existing mortgages. <br />
<br />
<strong>Why it's worth considering</strong> <br />
There are many reasons using home equity loans make sense to help your child move on to the next stage of his or her life. For one, they're often a more attractive option than selling investments. Going that route sacrifices any future return on your investments and could result in a hefty capital gains tax bill. <br />
<br />
Home equity financing also makes more sense than cashing in your retirement funds. You may be charged a higher rate of interest to borrow against your retirement and also may be required to pay a penalty. And don't forget the income tax you'll have to pay on the withdrawals. <br />
<br />
Since home equity loans or lines of credit are secured against the value of your home, they usually have lower interest rates than unsecured loans. <br />
<br />
In addition, the interest you do pay may be tax-deductible (up to $100,000), though you should consult a tax advisor about your situation. <br />
<br />
Mortgage rates are still low enough that taking on more house debt is not as onerous as it once was. On average, house values have climbed consistently over the past several years, indicating a reasonable expected return. <br />
<br />
<strong>Tread carefully</strong> <br />
Take care to have thought out your decision thoroughly before venturing into this territory. As accessible and attractive as this ready source of funds seems, there's still risk involved. If you've reached the life stage where you're considering giving your kids a financial boost, you've also reached the one where the necessity of retirement planning starts to loom. By putting more debt on your paid-off or soon-to-be-paid-off home, you risk sabotaging your own retirement nest egg. </p>
<p><br />
</p>
]]></content:encoded>
</item>
<item>
<title>Downsizing or using home equity for retirement</title>
<description>There are many ways to use the value you've built up in your home to improve your finances during retirement.</description>
<link>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Mortgages/Downsizing-or-using-home-equity-for-retirement.aspx</link>
<pubDate>Wed, 25 Oct 2006 10:30:32 EST</pubDate>
<category>Using your home equity</category>
<guid>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Mortgages/Downsizing-or-using-home-equity-for-retirement.aspx</guid>
<content:encoded xmlns:content="http://purl.org/rss/1.0/modules/content/"><![CDATA[
Downsizing or using home equity for retirement
There are many ways to use the value you've built up in your home to improve your finances during retirement.
<p>If your children are out of the house and you've reached, or are approaching, retirement age, you may need to reassess your finances, especially when it comes to your home. Here are a few ideas to consider: <br />
<br />
<strong>Downsizing your home <br />
</strong>It's easy to grow attached to a home you have lived in for years, especially if it's where your children grew up or you've put a lot of work into it. But it can be quite tiring to maintain a large home that only you or your spouse are living in. If you are not using the space in your home and you are struggling with household chores and monthly payments, you might want to consider downsizing to a smaller home at a more affordable price. A smaller home will be easier to maintain and you can use the profit you make to help fund your retirement. <br />
<br />
<strong>Using your home equity</strong> <br />
If you are in retired, you may find that even though you don't have a considerable income, you live in a valuable home. This means that your home may be one of your most important financial resources and you may want to tap into some of that home equity. Talk to a financial advisor for advice on various options that could benefit your particular situation. <br />
<br />
<strong>Taking out a reverse mortgage</strong> <br />
A reverse mortgage lets you turn some of the equity you have in your home into cash. Instead of borrowing money and repaying it to a lender, as with a standard mortgage, you receive payments from a lender. If you decide to sell your home, then you must repay the loan; otherwise you can remain in your home during your lifetime and your estate will pay it back after you die. Getting a reverse mortgage does carry some costs, however, so it's wise to consult a financial planner to help you decide if it is the right move for you. </p>
<p><br />
<br />
</p>
]]></content:encoded>
</item>
<item>
<title>A less expensive vacation home</title>
<description>House-swapping clubs could be your ticket to a bargain holiday in a home-away-from-home.</description>
<link>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Smarter-spending/A-less-expensive-vacation-home.aspx</link>
<pubDate>Tue, 29 Aug 2006 12:44:00 EST</pubDate>
<category>Using your home equity</category>
<guid>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Smarter-spending/A-less-expensive-vacation-home.aspx</guid>
<content:encoded xmlns:content="http://purl.org/rss/1.0/modules/content/"><![CDATA[
A less expensive vacation home
House-swapping clubs could be your ticket to a bargain holiday in a home-away-from-home.
<p>Want to live in a rent-free "home away from home" on your next vacation? A house-swapping club might be just the ticket for you. <br />
<br />
<strong>Membership in a house-swapping club allows you to live in someone else's home, free of charge, for a pre-agreed period of time. </strong>In exchange, that person, or a third party who also belongs to the club, lives in your home rent-free while you're away. <br />
<br />
House-swapping clubs began about 50 years ago. At that time, membership was limited to a few hundred people around the world, who listed their homes in books. Today, more than 250,000 people from all over the globe swap homes each year through on-line clubs such as homeexchange.com and homelink.org. <br />
<br />
Club members enjoy enormous choice of where to go, as well as free, comfortable accommodations where they can settle in for a few weeks, buy groceries and cook for themselves, and even entertain visitors from back home. Seattle resident Hanni recently listed his home with homeexchange.com. He got four offers for swaps in five days: one was a castle in south Germany; another was an apartment near Central Park in Manhattan; a third was a home in Wiesbaden, Germany; and the fourth was an ocean-view home in Brittany. He didn't know what to choose. <br />
<br />
<strong>How to start <br />
</strong>Most online house-swapping clubs allow you to look at listings of available homes, and even contact homeowners, for free. <strong>If you decide to join, membership fees range from $30 to $70 annually</strong>. Membership allows you to list a description of your home's features and the dates it is available while you browse other listings by location, availability and size. <br />
<br />
When you find a place you like, you contact the homeowner directly and arrange the dates and times when you will exchange homes. You can even arrange three-way swaps, for greater flexibility. <br />
<br />
<strong>What you get</strong> <br />
<strong>In addition to savings on accommodations and food, you may be able to swap cars and save hundreds of dollars in rental fees</strong>. Before making arrangements to use your host's car, make sure you have the proper insurance in place. <br />
<br />
Swapping is particularly appealing to families on the go. "We just returned from a great five-week holiday in Great Britain where we did two separate exchanges," reports Tristen T. on homelink.org. "Both families and houses were terrific and it is definitely the only way to go with kids in tow." <br />
<br />
You also get a different perspective than you do staying in a hotel in a tourist area. Ask your "host" to recommend places to visit, restaurants to try and sights to see. <br />
<br />
<strong>If you swap</strong> <br />
Here are some pointers for arranging a successful swap: </p>
<ul>
<li>Make sure that the home you're swapping for suits your needs. It should have enough bedrooms to accommodate your family, for example, and be within a reasonable distance of sites you want to visit. </li>
<li>Get an international driver's license and familiarize yourself with the rules of the road in your destination country so you can swap cars. </li>
<li>Ask for a reference from the member with whom you are considering swapping, and check it out. </li>
<li>Write up all the details of the exchange in an agreement, which you and the member(s) you're swapping with sign. </li>
<li>Make sure your insurance covers any damage to your home by visitors while you are away. </li>
</ul>
<p><br />
</p>
]]></content:encoded>
</item>
<item>
<title>Reverse mortgages</title>
<description>If you are 62 or older and short of cash, a reverse mortgage can help you stay in your home and meet your expenses.</description>
<link>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Using-your-home-equity/Reverse-mortgages.aspx</link>
<pubDate>Mon, 21 Aug 2006 12:24:00 EST</pubDate>
<category>Using your home equity</category>
<guid>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Using-your-home-equity/Reverse-mortgages.aspx</guid>
<content:encoded xmlns:content="http://purl.org/rss/1.0/modules/content/"><![CDATA[
Reverse mortgages
If you are 62 or older and short of cash, a reverse mortgage can help you stay in your home and meet your expenses.
<p>How can you get cash out of your home? One way is to sell - but then you have to move. Another is to take out a home equity loan. But you'll have to pay it back. <br />
<br />
The third option-for those 62 and older, at least-is a reverse mortgage, which requires neither a move nor loan payments. Reverse mortgages are gaining in popularity, but are not well understood. They are like conventional mortgages turned upside-down, and the concept is a little difficult at first. <br />
<br />
Both conventional and reverse mortgages create debt against your home. But they're distinct for a couple of important reasons. A conventional mortgage is a falling-debt, rising-equity transaction. Reverse mortgages are based on a rising-debt, falling-equity model. <br />
<br />
With a reverse mortgage, the lender sends you cash and you make no repayments, so your debt increases and your equity shrinks. When a reverse mortgage becomes due and payable, all of your home's value will have been turned into loan advances, loan costs or leftover equity. <br />
<br />
While that notion might seem alarming, remember that's precisely what reverse mortgage borrowers are after: the ability to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments. <br />
<br />
A reverse mortgage comes due and must be repaid when you die, permanently move out (to live with a family member or to a nursing home in most cases) or sell. Otherwise, you're free to stay in your home as long as you wish. If you pass on, your heirs can pay the loan back, with interest, and keep your home. Alternatively, they can sell it to a third party and repay the lender out of the proceeds (any excess goes into your estate). <br />
<br />
You don't need a minimum income to qualify. You could have no income or even still owe money on a conventional mortgage. In fact, some seniors get reverse mortgages to pay off a first mortgage. <br />
<br />
The only eligibility requirements are that you are at least 62 years of age and treat your home as a principal residence. (If you own your property jointly, the other owner(s) must sign on to the loan, too.) <br />
<br />
<strong>How much can you get? <br />
</strong>The amount of cash you can receive from a reverse mortgage generally depends on: </p>
<ul>
<li>the specific reverse mortgage plan or program you select </li>
<li>your age </li>
<li>your home's appraised value </li>
<li>interest rates and closing costs on local home loans </li>
<li>other costs of the loan </li>
</ul>
<p>You can take receipt of the loan in whatever fashion you choose, including a one-time lump sum, a line of credit, fixed monthly payments for a predetermined period of time or a combination of the above. <br />
<br />
Reverse mortgages are offered by banks, mortgage companies, savings associations and state and local governments. The funds from private-sector loans can be used for any purpose. Government loan programs generally limit spending options to specific purposes, such as home repairs or property taxes. Many public-sector loan programs are only available to homeowners with low or moderate incomes. <br />
<br />
<strong>Private reverse mortgages are subject to a variety of costs</strong>. They may include: </p>
<ul>
<li>an application fee </li>
<li>an origination fee </li>
<li>closing costs </li>
<li>insurance </li>
<li>a monthly servicing fee </li>
</ul>
<p>Â </p>
]]></content:encoded>
</item>
<item>
<title>Should you downsize your home?</title>
<description>There are pros and cons to downsizing. Consider your finances and lifestyle before making a decision.</description>
<link>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Finding-the-right-home/Should-you-downsize-your-home.aspx</link>
<pubDate>Fri, 18 Aug 2006 03:59:00 EST</pubDate>
<category>Using your home equity</category>
<guid>http://www.emjcd.com/click-1762781-10499358?url=www.lendingtree.com/smartborrower/Finding-the-right-home/Should-you-downsize-your-home.aspx</guid>
<content:encoded xmlns:content="http://purl.org/rss/1.0/modules/content/"><![CDATA[
Should you downsize your home?
There are pros and cons to downsizing. Consider your finances and lifestyle before making a decision.
<p>The kids will soon be off to college and out of your home. Should you run out and sell your house? It's not a simple decision. <br />
<br />
<strong>Factors that may encourage you to stay include: </strong></p>
<ul>
<li>Do you want a place for your children and grandchildren to stay when they visit? </li>
<li>Are you emotionally ready to leave? </li>
</ul>
<p><strong>Factors that may encourage you to downsize include: </strong></p>
<ul>
<li>Do you need a smaller home because of financial reasons or other circumstances? </li>
<li>Would you be better off if you saved money on your mortgage payments, or do you need the profits from selling your house to live on? </li>
<li>Do you need to move to be close to a spouse who is in a nursing home? </li>
<li>Can you and your spouse still climb the stairs every day to an upstairs bedroom? </li>
</ul>
<p><strong>Make sure it's affordable </strong><br />
If you decide to downsize, make sure the place fits both your pocketbook and your lifestyle. <br />
<br />
Ask a REALTOR® how much he or she will charge to sell your house. Then determine how much you will end up with from the sale. Under current tax rules, up to $500,000 (if you are married and file jointly) in profits from the sale of your principal residence are not taxable as long as you've lived there for at least two of the previous five years. Up to $250,000 in profits are not taxable if you're single. Consult a tax advisor to discuss your situation. <br />
<br />
Look into how much it would cost to move and to maintain a smaller home. Make sure it really is cheaper to live there. <br />
<br />
Decide to downsize only once you're satisfied that the finances make sense. <br />
<br />
<strong>Buy into your new lifestyle <br />
</strong>A smaller house in your current neighborhood could be the right decision if your priority is maintaining close ties to neighbors. Just make sure there are amenities like public transportation and stores nearby if your health begins to deteriorate. <br />
<br />
A condominium or a unit in a retirement community could be perfect if you never want to mow again, or if you want to focus on travel, hobbies and perfecting your golf stroke in the company of other seniors. Just remember you'll have to pay maintenance fees for the upkeep of the common areas. Talk to current residents to see whether they're happy with the way things are run. Also investigate the rules. If the association forbids pets and you're a devoted dog-owner, be prepared to move on. <br />
<br />
You may prefer to purchase a duplex or something similar. Renting one of the units will bring in extra income, and you'll have built-in neighbors. <br />
<br />
If you're adventurous, you may even opt to move to another state or country. Make sure to visit first, get your paperwork in order and anticipate seeing less of the people you leave behind. <br />
<br />
Finally, be prepared to sell or give away furniture and other possessions. You'll have less space for everything after downsizing. </p>
<p><br />
</p>
]]></content:encoded>
</item>
</channel>
</rss> |
||
 |
 |