Can you answer moviefan2020’s question about Equity?:

The bank is offering a line of credit sale. I pay no fees, the bank is covering all closing costs, state taxes, appraisal fees and the first year annual fee. I can take out a line of credit on the equity of my house. The rate is prime minus 1/2.

What is in it for them? Could there be a hidden downside for me? What do you think?

Mortgage Refinance Rates

Can you answer King Money 1985’s question about Equity?:

I know a HELOC is a “Home equity line of credit” but what is the difference between that and a “Home Equity Loan”?

Have you claimed your Genesis site?

Having equity in your home is beneficial in more ways than just ownership of your home.

Of course equity signifies that you are well on your way to owning your home free and clear.

You should take a great sense of pride in the progress you have made toward owning your home. Many lenders allow you to take advantage of equity you have in your home in the form of a line of credit.

This can benefit you in many ways:

Many homeowners are using what is known as a home equity line of credit to borrow from the equity their homes for various reasons: taking a summer vacation, financing home improvement projects, paying off other consumer debt, and a host of other reasons.

You can use a home equity line of credit in a manner similar to what you would use a credit card for. The major difference in that you receive a higher spending limit. The cost of the higher spending limit is your home.

A home equity line of credit, commonly referred to as HELOC, is fairly easy to obtain given you are credit worthy and have equity in your home. In many cases, you are able to receive low interest rates and other perks for obtaining a home equity line of credit. You are typically able to borrow up to 85% of the appraised value of your home less what you still owe on your home. For example, if your home is appraised at $100,000 and you owe $30,000 on your home, you can qualify for a home equity line of credit up to $55,000.

Obtaining a home equity line of credit is not much different from obtaining a mortgage. In fact, when you take out the line of credit, you are subject to many of the same closing costs as your initial mortgage. For example, when you close on your home equity line of credit you might have to pay an application fee, appraisal fee, attorney’s fees, title search, and points. As with a mortgage, negotiating these fees is key because ultimately the cost of your home equity line of credit is increased because of the fees. Ask your lender to detail the costs you are being asked to pay so you can better determine what to negotiate. Then, ask that one or more of the fees be eliminated or reduced.

You might be subject other continuing fees with your home equity line of credit. Since these fees vary by lender, you should inquire about them before obtaining the line of credit. Typical fees associated with a home equity line of credit include membership fees and transaction fees. These fees, as with the closing costs, increase the cost of your home equity line of credit.

As with mortgages and other loans, you should shop around for the home equity line of credit that has the best terms for you. This includes the interest rate you are charged, associated fees/costs, and repayment terms. Use each of these factors to make a decision on a lender.



Thanks to Gerald Mason for contributing this article to our Equity blog:

Private Equity Investment

In a November, 2007 report, the Canadian Association of Accredited Mortgage Professionals (CAAMP) stated that in the previous 12 months, 17% of mortgage holders took out home equity loans or increased their mortgage. The average equity loan was $35,400.

What are people doing with all this money? Paying down debts, sending the kids to school, investing in their homes - there are many possible answers to that question. If you’ve ever considered tapping into your home’s equity, the following FAQs can help you decide whether home equity loans are the right strategy for you.

What Are Home Equity Loans?

Home equity is the difference between the market value of your home and what you still owe on the mortgage. So if your house is valued at $300,000 and you still have $260,000 outstanding on your mortgage, your equity would be $40,000.

Home equity loans enable you to borrow against that equity. These loans are also known as second mortgages because they are a second loan (the primary mortgage being the first) that uses your house as collateral.

How Much Can You Borrow?

With most home equity loans you can borrow anywhere up to 85% of the amount of your home equity. For the case above, with $40,000 in equity, the homeowner could borrow $34,000.

Some lenders have more generous options, even offering to lend 100% of the amount of equity in your home.

How is a Home Equity Line of Credit Different?

A home equity line of credit (HELOC) is much the same as a standard line of credit, but it uses your home’s equity for security. With a HELOC you can typically borrow up to 90% of your home’s equity. With $40,000 in equity, you could obtain a HELOC for $36,000.

With a HELOC, you do not necessarily have to use all of the credit at once. You can use it as needed and pay back what you borrow, just like a standard line of credit.

On the other hand, home equity loans are one-time, lump sum loan. If you need more money, you’ll need another loan.

The general guideline is that a HELOC is best for those who need access to varying amounts of money for ongoing expenses, whereas a home equity loan is better suited to those needing a specific amount for one large expense, like a home renovation.

What About Interest Rates?

Home equity loans typically have fixed interest rates, while HELOC rates are variable. The interest rates for both are typically pegged to an institution’s prime rate, and are often significantly lower than those charged for vehicle loans, credit cards and personal loans.

What is Mortgage Refinancing?

With refinancing, you pay off your existing mortgage and obtain a second mortgage for a lower interest rate. With a “cash-out” mortgage or refinance you can borrow more than what you owe on your mortgage. You can then take the extra money and use it for expenses like tuition, home improvements and so on. Refinancing may include costs for mortgage fees and prepayment penalties.

What are the Pros and Cons?

On the plus side, home equity loans provide low-cost credit for important expenses. In extreme cases, the risks are that the home market slows and you end up owing more than the value of your home, or that you overspend and default, which means the loss of your home.

For many people the pros outweigh the cons. To be sure if a HELOC or loan is right for you, it is best to consult with a mortgage professional.



Thanks to Crystal Mate for contributing this article to our Equity blog:

Private Equity Venture Capital

With any remodeling and construction projects you do on your home there are many payment options available for most home improvement remodeling projects. For example, you can get your own loan such as a home equity loan or credit equity line or ask the contractor to arrange financing for larger projects. For smaller projects, you may want to pay by check or credit card.

For the larger projects a home equity loan, or a credit equity line also known as an equity home line of credit, can be a good solution because the interest rates are often better than other types of loans or credit and, depending on the amount of equity you have in your home, you might also be able to use it as a debt consolidation loan at the same time to pay off high interests credit cards and other high interest debt so you can be relatively debt free with just the equity home line of credit at a lower interest rate and improve your home and bring up its value at the same time.

What is the Difference between a Home Equity Loan and a Home Equity Line of Credit?

A home equity loan is a loan that is secured by your home. It is also sometimes referred to as a closed-end home equity loan or a second mortgage and is a fixed amount of money that must be repaid over a fixed term just like your original mortgage. You get the entire loan amount upfront all at once. You have predictable, consistent monthly payments.

A Home Equity Line of Credit in many ways is similar to a credit card. It is a a form of revolving credit in which your home serves as collateral. You can borrow as much as you need, whenever you need it, by writing a check as long as your total borrowing does not exceed your credit limit.

Because it is a line of credit, you make payments only on the amount you have actually borrowed, not the full amount available. What makes a Home Equity Line of Credit so popular is that interest paid is usually tax deductible under federal and most state income tax laws.

Whether you use a home equity loan or a home equity line of credit for a home improvement project or as a debt consolidation loan or both it’s a great way to make your debt tax deductable and improve the value of your home at the same time.



Thanks to Rebecca Noel for contributing this article to our Equity blog:

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