Home Equity Loans
A home equity loan allows you as a homeowner to get a loan by using the equity in your home as collateral. The equity consists of whatever funds you have invested in your property in order to own it or improve it.
Since it is a debt against your own property, which you are in actual possession of, a home equity loan is a secured debt. The property can be required to be sold if the creditor wants the money back that you have borrowed.
Home Equity Loan vs. Home Equity Line of credit (HELOC)
A home equity loan can be obtained in a lump sum or used as a revolving home equity line of credit.
A home equity loan can be either of the following:
- A fixed rate mortgage
- An adjustable rate mortgage
A homeowner who requires more money in large amounts usually applies for a home equity loan. Some expenses that make a home equity loan useful are:
- Debt consolidation
- Home repairs
- Medical bills
- College tuition for family members
- Tax benefits of home equity loans
A home equity loan is also beneficial because the home equity loan rate charged is usually tax deductible, as the loan is used for its primary functions. You can use our loan calculators to check what various home equity loan rates will mean for your monthly payments.
More information on home equity loans and rates
If you would like more information on home equity loan rates, and how
to find the best home equity loan,
Contact Us or call us at 877-538-7967 for the lowest
current home equity loan rates! A Home equity loan specialist
will get in touch with you to consider your options and see how a home
equity loan can help you make the most of what you have.
Here are the parts of Home Equity Loans you should know about:
- What is Home Equity?
- Home Equity Lending Terminology
- The Home Equity Loan Types Explained
- Choosing the Right Home Equity Financing
- Funding a Home Equity Loan
Contact Us or call us at 877-538-7967 for the lowest current home equity loan rates.
What's Home Equity?
You've heard people talk about home equity in knowing voices. And you've probably seen it mentioned in the colorful ads spilling out of your Sunday paper. But what exactly is it? It's like a riddle…something you can't see, touch, or smell.
Home equity is the value of your home that exceeds the balance on your mortgage. In plain English, if your home is worth $200,000, and you have a mortgage balance of $150,000, your home equity is valued at $50,000. If your home is worth $200,000, and you've paid off your mortgage in full, your home equity is $200,000.
When you have equity in your home, the bank will lend you money. It's an asset with a measurable value. Lenders are happy to accept it as a security deposit against your debt.
In return for lending you all that money, the bank takes an ownership stake in your home. But-and this is important-that stake is limited to the amount of money you actually owe them. When your house is worth more than what you owe, the excess value belongs to you, free and clear. That amount will vary, though, because home values and loan balances change over time. If the home's value drops, your equity goes down. If it increases, your equity accompanies it into higher levels.
Contact Us or call us at 877-538-7967 for the lowest current home equity loan rates.
^ Back to TopHome Equity Lending Terminology
The language of lending can be a little off-putting, because most people aren't familiar with the terms. To keep you from stumbling over these concepts, we've defined the most important ones:
Adjustable rate: A mortgage rate that's pegged to a specific economic indicator, such as treasury bills or the prime interest rate.
APR: The annual cost of the loan, including fees, interest, and points, expressed as a percentage.
Collateral or security: The property or asset that secures the debt. If the debt's not paid on time, the lender has the right to foreclose.
Fixed rate: A rate that's set at the time of closing and remains constant throughout the mortgage term.
Foreclosure: When the bank takes possession of a property because the borrower doesn't adhere to the terms of the mortgage agreement.
Loan-to-value ratio or LTV: Expressed as a percentage, this number is the result of the mortgage amount divided by the home's appraised value or selling price, whichever is lower. LTV helps the lender determine how much debt you can comfortably handle. Most lenders are reluctant to lend 100 percent of a home's value, because that leaves them no cushion if property values decline.
Prime rate: A national benchmark interest rate that commercial banks charge their best borrowers, generally large corporations. Some home equity products are priced at a slight margin above or below the prime rate.
Second mortgage: Any loan that's subordinate to a first mortgage.
Term: The length of time that you have to repay your mortgage loan.
Contact Us or call us at 877-538-7967 for the lowest current home equity loan rates.
The Home Equity Loan Types Explained
Home Equity Loan
A home equity loan is ideal for anyone who doesn't like surprises. It provides one lump sum payment that you'd pay back in fixed monthly installments, generally over the course of 10, 15, or 30 years. Unless you miss a payment, the maturity date and the interest rate won't change. This is the type of loan that you could set up on auto-pay, and forget about until it's paid off.
Home Equity Line of Credit
The home equity line of credit (HELOC), is a revolving debt with an approved credit limit. You can borrow some or all of it. Once you repay it, you can borrow the money again. Monthly payments can be low. Sometimes, you're only required to pay interest, or merely 1 percent of the outstanding balance. HELOCs carry a variable interest rate tied to the prime rate. If the prime rate is 8.25 percent, and your rate is "prime plus 0.25 percent," your rate would be 8.50 percent. Since the prime rate changes periodically, your interest rate will move up or down during the life of the loan.
Now that you've understand the two mortgage siblings, you're ready to start thinking about which one you like better.
Contact Us or call us at 877-538-7967 for the lowest current home equity loan rates.
Choosing the Right Home Equity Financing
Which second mortgage loan is right for you? Selecting the right debt instrument is a crucial decision, one that can make or break your financial future. Fortunately, answering two simple questions readily reveals the right choice: How do you plan to use the money, and how do you plan to pay it back?
Let's start with some general guidelines:
- Fixed-rate home equity loans are more suitable for a one-time, fixed expense.
- HELOCs are better for recurring cash needs.
- Home equity loans often have higher monthly payment requirements, and fit better with borrowers who have steady cash flow.
- HELOCS have lower monthly payment requirements, and fit well with borrowers whose incomes vary from month to month. The trade-off for lower monthly payments is a more uncertain repayment schedule.
- Home equity loans and taxes
Both home equity loans and HELOCs have the persuasive benefit of tax-deductible interest. You can generally deduct the interest paid on the first $100,000. But be careful-if the market value of your home drops below your indebtedness, the allowable deduction might go down as well. Always consult with your tax advisor for the specifics of your situation.
Learning by example
Applying these guidelines to your life should be relatively straightforward. As an example, consider fictional borrower John Smith, a real estate broker who earns a low monthly base salary, plus commissions and quarterly bonuses. John wants to buy his daughter a car. A home equity loan is an appropriate instrument, because he can easily budget for it on a monthly basis, since payments will be fixed.
When John's not showing homes to prospective buyers, he's a do-it-yourselfer who wants to build an addition to his home. Over the eight months it will take him to complete his project, he'll need to purchase about $50,000 in supplies. It doesn't make sense to pay interest on the entire $50,000 from Day 1, when he only needs $10,000 to get his project started. If John chooses a line of credit in the form of a HELOC, he can borrow the $10,000 at closing, and the other amounts as the project unfolds.
You don't have to be John Smith to make the right choice with confidence. If you're still stumped, a trustworthy lender can (and should) provide some additional insight. But now, you're knowledgeable enough to ask the right questions and benefit from the answers.
Contact Us or call us at 877-538-7967 for the lowest current home equity loan rates.
^ Back to TopFunding a Home Equity Loan
Here are some pit stops on the way to your final destination-having cash in hand.
Loan Amount
You probably know how much money you need, but you may not know
how much you can get. Lenders will calculate your equity, but they generally
won't lend you that entire amount. (Remember that LTV definition from
Chapter 2?) It's just too risky for a bank to lend you 100 percent of
your home's value. A better guideline is to calculate 80 percent of your
home's value, and subtract your first mortgage balance. The answer will
be something close to what you can obtain from a home equity lender at
the lowest interest rate possible.
Application process
Once you apply for a home equity loan (HELOC), lenders will carefully
review your income, your employment status, your credit history, and the
value of your home. This information is used to assess how risky you are
as a borrower. The riskier you are, the more expensive your interest rate
will be. It's also possible to have a no-documentation or low-documentation
loan, but lenders have been tightening their belts on these products as
of late, and they're becoming harder to come by.
Closing costs
Costs associated with obtaining your second mortgage may include
fees for the appraisal, application, title search, and other closing services.
If you have excellent credit, some lenders will waive these expenses completely.
Ask all prospective lenders for a written statement of estimated closing
costs. These figures have been known to change at the last minute, so
prepare you by asking the lender how such changes are handled.
Home equity debt can be an extraordinarily powerful financial resource; but it isn't right for everyone. If you choose your path from a position of knowledge, you're already heading in the right direction, and can enjoy the process as much as a smooth Sunday drive in the country.
Contact Us or call us at 877-538-7967 for the lowest current home equity loan rates.
Once you're ready to speak with a Connecticut or Massachusetts mortgage company we’re here to help. We offer free pre-approvals and prompt service. All types of credit and income are welcome and there’s absolutely no cost or obligation.
Apply for a mortgage pre-approval now via our secure web application, Contact Us for the lowest current mortgage rates, or call us at 877-538-7967.
^ Back to TopMiller Mortgage is a licensed mortgage broker in Massachusetts, New Hampshire, and Connecticut. Located just north of Boston in Peabody, MA our mission is to provide the best customer service and the lowest mortgage interest rates. Our volume enables us to provide the best mortgage rates and programs in the Mass and Connecticut markets.
When you call Miller Mortgage, you’re speaking with local representative who knows the area - not an impersonal calling center. We serve all Massachusetts, New Hampshire, and Connecticut towns. As a local mortgage broker, we have expert knowledge of Massachusetts communities such as Worcester, Boston, Plymouth, Andover, Lowell, Newton, Peabody, Middleton, Danvers, and Quincy.
We’re here to help build your financial freedom and to be an ongoing part of your financial future. As part of that goal, we offer free pre-approvals and prompt service. All types of credit and income are welcome and there’s absolutely no cost or obligation. Apply for a mortgage pre-approval now via our secure web application, Contact Us for the lowest current mortgage rates, or call us at 877-538-7967.
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