The really scary part about HELOCs is that they're generally fully adjustable. This means your rate is not locked at all, and your payment could potentially change every month. As if that's not bad enough, HELOC interest rates are generally tied to the Prime Rate. This is bad because the Prime Rate is directly tied to the Fed Funds Rate, which is being raised nearly every two months by the Fed Open Market Committee (FOMC), and its chairman Alan Greenspan. This means that unlike most mortgage indexes, the Prime Rate is not determined by the market, it's determined by the government.
So in a nutshell, be very careful before deciding to open a HELOC. If your interest rate is tied to the Prime Rate, realize that it can go up at any time and is not tied to the markets, so it can be very volatile. For further explanation or questions, please feel free to shoot me an email at carey@januaryfinancial.com!
A Home Equity Loan - What You Should Know?
Asking yourself, “Is a home equity loan right for me?” is the first and most important step to take.
Home equity loans have become so popular today because of increasing home values. A home owner can access money for consolidating debt, home improvements, a new car, education or starting a new business.
Emotions can take the place of logic when considering a home equity loan.
It’s a good idea to sit down and take your time before signing up. Educating yourself will benefit you in the long run.
A home equity loan is like having a second mortgage on your home. Suppose your home is worth $200,000, and you have a mortgage against it at $150,000, you will have $50,000 of equity available. Home equity loans allow you to borrow up to 80%, and sometimes more in certain situations, of your homes value. In this situation you could borrow $80,000 as a home equity loan and still have only borrowed 80%.
This is why it is so important to take a good look at your situation before making a decision. You can see how easy it could be to get carried away with a home equity loan.
The second step should be to get an idea of what your home is worth in today’s real estate market. You can look at what others in your area have sold their home for. A realtor can help you with getting an idea of your homes fair market value. Be sure to get a few quotes because some realtors may be interested in inflating your home value in hopes of earning your business.
When you have an approximate figure, you can get an idea of how much equity you have in your home. At this point you should have an estimate of how much money you need to borrow. It’s best if you can avoid borrowing up to the full 80% of your homes value.
This is where some home owners get carried away with their emotions and logic goes out the window. It can be so easy to say, I have $60,000 available and I really only need $40,000 for remodeling my kitchen and bathrooms. Why not borrow $50,000 so I can go on my dream vacation. It’s important to remember that the more you borrow, the higher your payments will be. This is simple logic. But, emotions can take over and you can end up having a tough time paying back the home equity loan, with the risk of losing your home.
The third step is to figure out what type of home equity loan you want. In today’s market, there are two popular types of home equity loans. A line of credit and a closed end loan.
With a line of credit, it is just like having a credit card with a large credit limit. Depending upon the bank, you may be required to make minimum monthly payments. Others may only have you make payments if you’re at your credit limit. If you have had problems with high credit limits in the past, this may not be a good idea. It’s best to have discipline with a line of credit and big credit limits.
Having a closed end loan is just like your standard home mortgage loan. You borrow the money for a set period of time and make monthly payments until the loan has been paid off.
The fourth step is to figure out how long you want to borrow the money. This is where mortgage calculators can help you. It’s easy to find them online and helps you to avoid having to talk to a loan broker before you are ready. Try different time frames to see what you can and can not afford. Be sure to decide if you’re going to take a line of credit or a closed end loan before you put in your figures. This is an important step to see how much you can afford repaying on a home equity loan. It’s best again to use logic, not emotion in regards to how much you can afford to repay.
The fifth step after choosing the home equity loan you want, is to find a good bank or lender. Shopping online can save you valuable time. Banks and lenders are very competitive for your business online. You can use this to your advantage and save money on fees. Be sure to look over the fine print of your home equity loan contract before signing anything. Read everything, and if you have a questions be sure to have them answered first. Be very clear on everything and take your time.
A home equity loan is a great way to help you take care of things you would like done or feel you need. If done properly , a home equity loan can be a valuable resource. Educate yourself to find out what is best for your situation. Try not to compare your situation to someone else. Only you know what is best for you. Home equity loans can be a big windfall or a big headache. It really depends upon you taking the time to research your options and choosing the right loan.
Dean Shainin is a consultant specializing in home equity loan strategies, refinance and consumer home loan information. Grab a copy of "The Ten Dirty Little Secrets Of Mortgage Financing" at: http://www.homemortgageloantips.com
Article source: ArticleWorld.net Free Articles
posted by ocmortgageguy | 4:49 PM
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