Archive for March 26th, 2013

Home Equity Loans

Personal loans can be used for many purposes, from consolidating debt to paying off medical bills.

The rules regarding home equity loans are complex. There are specific guidelines for the types of mortgages, the interest rates, the types of properties the home can be repossessed from and the fees that lenders can charge.

To learn more about these laws, read Understanding Home Equity Lines of Credit, Understanding Home Equity Lines of Credit: FHA and VA Loans, and Understanding Home Equity Lines of Credit: Commercial Lenders.

The Bottom Line

Home equity loans are relatively safe, with no pre-existing credit history, limited fees, and high loan-to-value ratios. Because the money is tied up in your home, you can’t spend it on a car, jewelry, or any other purchases. Home equity loans are available to consumers with decent credit and good credit scores. A home equity line of credit is not for everyone, so it’s important to compare your own finances, personal credit scores, and financial needs with those of your prospective home equity line of credit loan applicant.

Is the Home Equity Line of Credit Loan For Me?

The following factors determine whether a home equity loan is right for you.

Are you applying for a home equity loan because you have an emergency that has to be paid?

If so, then you should find a lower interest rate for the home equity loan. If you can get a higher rate, make sure it’s from a lender who has good reputations.

Home Equity Loans vs. Personal Loans

If you are considering an HELOC, remember that a HELOC is a loan. This means that you should make every reasonable effort to keep the payment low and the terms on the HELOC as short as possible. If you are paying your HELOC down at a rate that allows you to make payments, then you will be able to use the money you make in the future for things that you need. For example, if you are paying it down at 8 percent, you will be able to use the 8 percent of your HELOC to pay your taxes. Your HELOC may have a lower interest rate than you were previously paying. You can’t use the HELOC money to purchase a new home, buy a car, or start a new business, but you may be able to use part of the money to pay off a loan on your existing home or pay for a car loan, a house or condo down payment, or any other loans that you may be able to get.

A lender may be willing to grant you a small amount of your new home or car loan as a home equity line of credit, also known as a HEPOC.

Your mortgage lender will be able to tell you how much your HEPOC is, the rate of interest that you may get, and the amount of money you can put into it.

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