How To Get A Home Equity Loan For Debt Consolidation

As many people have found out, it is not hard to get into debt. In fact, if you are not careful just about anybody can do it. Getting out of debt, however, is another matter. It takes longer to pay it off than it does to make the debt. If you have a home, though, and you have lived there for some time, then it is possible to use the equity in your home to pay off those bills. Here is what you need to know about home equity loans and how you can use one for debt consolidation.

You want to start by looking at your credit report and make sure it is accurate and up to date. Mistakes can be made on a credit report and you don't want to have any there that will cause your interest rates to be raised. Look it over carefully and take the needed time to make sure the corrections have been made.

Calculate Your Debt

Add up all your bills and find out what your total indebtedness is. any amount you owe to someone else should be added in to this list - don't leave anything out. This is the amount that you will need to borrow from your home's equity in order to simplify your life and pay off those debts.

Two Ways To Go

There are two ways that you can use your home's equity to consolidate your debts. The first way is to refinance your first mortgage. You may want to look into this method first, because it is the better option. The key is what kind of interest rate you can get on a new mortgage. This is called a cash out mortgage. If the interest rates are more than 1% lower than your present interest rate, then you will definitely want to look into it more. Not only would it give you access to your equity, but it could also lower your monthly payment and save you a lot of money. If you make the new mortgage about five years less than what you have left on the original, you could save tens of thousands of dollars and be debt free much quicker.

The other way is to get a home equity loan as a second mortgage. This will give you an added payment each month, but the interest will also be lower than what you have on nearly all of your debts - giving you savings. It will give you one simple payment (other than your first mortgage) and much longer terms. You should remember, though, that you will want to keep the length of repayment reasonably short - or you add on a lot of extra interest.

Shop Around

In order to find the best home equity loan you will need to get a few quotes from the lenders. You can do this easily online and get more than one quote at a single Web site. It won't take long and you will have the quotes you need. Compare them carefully in terms of interest, repayment time, overall cost, and other various fees. One of them will match your needs better than the others. All you will need to do then, is to find that one home equity loan and go with it.

More Information:

• What Is A Home Equity Line Of Credit And Is It For You?
  A home equity line of credit (HELOC) can be a real help to you financially if you need to get a source of money - and have some equity in your home. It gives you various options and a degree of control that you do not have with other type of mortgages.
• Home Equity Loans - How To Get A Good One
  If you have a home, then you already know that you can tap into your home's equity and use it any way that you want. Many lenders have provided you with a wide variety of ways for you to access that money.

Home Equity Loans - How To Get A Good One

A home equity line of credit (HELOC) can be a real help to you financially if you need to get a source of money - and have some equity in your home. It gives you various options and a degree of control that you do not have with other type of mortgages. Here are some things you need to know to help you decide if a HELOC is for you.

A home equity line of credit can be obtained as a second mortgage option, or if you should need to refinance everything, it can work for that, too. This line of credit, like a mortgage, is taken out against the equity you have in your home, or against the home itself. The line of credit is money that is available to you to use as you see fit. You draw it out as you need it, or if you need it, and then only pay interest on the portion of money that you actually use.

There is generally a period of time that you can draw the money out, depending on the length of the loan, and then a period when you start paying on the principal. The first part, when you can draw out the cash, does have minimum draw amount, and there is also a minimum amount that you will pay each month, which is usually just the interest.

It is an ideal way to get cash on an as you need it basis, without having to reapply to get new loans, or mortgages. You often are given a credit card, or check, which you use to obtain the money.

Interest on a HELOC has a fixed rate for a brief time, often just a few months, and then it goes to an adjustable rate. This new rate is adjusted according to the market, which also means that it could get quite high - if the economy goes wild. Interest on a HELOC is often adjusted on a daily basis that results in a lot of fluctuation.

The home equity line of credit usually comes with an annual fee, and with less than the other fees that normally come with a mortgage. This keeps it considerably cheaper, as far as fees go, but there are some other things that you do need to watch out for. A "margin" is a percentage of the loan that is added on to your payment each month. So, besides the interest, there is also a margin which could be as much as the interest itself. This fee is usually not disclosed anywhere - unless you ask.

A home equity line of credit can prove to be just what you need to be able to get money for those projects around home, or that new car. Be careful, though, about taking out a HELOC for more than you home is worth on the market. Doing so could mean that you have negative equity on the home and it could take you many years to get any equity on the house at all. Be sure to do some comparison shopping to get the best deal.

How Does a Home Equity Loan Work?

Home equity loans are simple interest, fixed rate loans, secured by a lien in second position on the title of your home. The amount of equity that is available for a loan is determined by the difference between the appraised value of your property and the balance on the first mortgage.

With a fixed rate home equity loan, the lender makes a one-time payment of the full amount that is borrowed, which is paid to you at the closing of the loan process. If you have an existing home equity credit line or a second mortgage on your home, it will need to be paid off with the proceeds of your new equity loan, so make sure to request a sufficient loan amount to include the pay off.

An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. For example, if a person owns a home worth $100,000, but does not currently have a lien on it, they may take an equity loan at 80% loan to value (LTV) or $80,000 in cash in exchange for a lien on title placed by the lender of the equity loan.

Many lending institutions require the borrower to repay only an interest component of the loan each month (calculated daily, and compounded to the loan once each month). The borrower can apply any surplus funds to the outstanding loan principal at any time, reducing the amount of interest calculated from that day onwards. Some loan products also allow the possibility to redraw cash up to the original LTV, potentially perpetuating the life of the loan beyond the original loan term.

The rate of interest applied to equity loans is much lower than that applied to unsecured loans, such as credit card debt.

Home Equity Loans: Steps for Success

Since all home equity loans are not created equal, you might find it frustrating when you consider your options. Make your life easier by taking a logical, organized approached to equity loan shopping.

In Alfred Hitchcock's movie, The 39 Steps, a man is caught in a web of intrigue that complicates his life and causes it to spin out of control. To avoid being caught in a similar circumstance when shopping for your home equity loan, here are five steps that will keep things simple and easy:

1. Shop around for the best deal. Start with your existing bank or credit union. You may also consider gathering bids online or responding to advertisements. Just remember to be skeptical about promises that sound too good to be true.

2. Know the product. Home improvement loans come in two flavors: the home equity loan or the home equity line of credit (HELOC). Know the basics of each so that you can assess which one is right for you.

3. Ask questions. Obtain a firm understanding of the points, APR, and closing costs associated with the loans you're considering. These items are detailed on the Good Faith Estimate, a document that the lender must provide within three days of receiving your loan application. One point to note when comparing your options: The APR for a home equity loan includes closing costs, while the APR for a HELOC does not.

4. Choose a rate structure. Home equity loan rates can either be adjustable or fixed. The interest on adjustable loans can fluctuate, exposing you to the risk of increasing costs. Fixed-rate loans have less risk, but can sometimes cost more for homeowners who end up selling in a few years. If you're uncertain how long you'll keep the property, consider asking your lender about a hybrid adjustable loan with a fixed introductory rate.

5. Know your closing costs. The Good Faith Estimate includes a quote on closing costs. Unfortunately, the actual costs at closing are often different from those on the estimate. Most of the fees are assessed by third parties, and therefore not under your lender's control. Ask your lender how closing cost changes are handled.

Equity loan shopping shouldn't be shrouded in suspense. Follow the steps and make your way to equity financing success.

Avoiding the Pain of Home Equity Loans

It's amazing what a little uptick in interest rates and a slow-moving housing market will do to consumer behavior. Back when rates were low, people couldn't tap their equity fast enough. Now, with rates hovering around 8 percent and home sales dragging, borrowers are singing a different tune.

Where once upon a recent time there was a stampede of home equity borrowers bombarding lending institutions, now there's just a crawl. Home equity borrowing, which averaged annual growth over 20 percent for the past five years, has recently slowed to just 9 percent.

Several factors in the real estate market have caused borrowers to put on the brakes. When home values were constantly climbing, and low rates made money dirt cheap, people tapped equity without a second thought. But rates have steadily climbed over the past few years, and this increase has caused minimum payments on balances to swell, prompting borrowers to tighten their purse strings.

The amount of equity available for a homeowner to borrow has also contracted. Home values have deflated with the slowdown in the market. As a result, borrowers may find that if they tap too much equity, their home's loan-to-value ratio may push over 80 percent, triggering the need for private mortgage insurance.

HELOCs at the back of the line

The rate increases have caused borrowers to grow increasingly skittish about home equity lines of credit (HELOCs). The Federal Reserve's increase in short-term interest rates during the last several years has resulted in rates on HELOCs rising from lows of 4.6 percent in 2004, to well in excess of 8 percent in today's market.

Since fixed-rate home equity loans have lower rates than variable HELOCs, many borrowers are converting their loans to the more affordable option. Some homeowners are also opting for a cash-out refinance on their first mortgage, although this may lead to higher payments for a longer term.

New products, new promotions

In the scramble to adapt to the changing marketplace, lenders are rolling out new marketing strategies and home equity products. Campaigns include joint promotions with retailers, such as home improvement stores, in which discounts on supplies are offered as part of the loan package. Other lenders are simply beefing up their advertising and internal sales tactics to persuade more homeowners to borrow.

The home equity loan is morphing, as well. Many lenders are now offering a hybrid home equity loan, in which part of the balance has a fixed interest rate, with a line of credit tacked on for future use.

The slowdown in the home equity market is a reality check for lenders and borrowers alike. When home values were escalating and interest rates plunging, there was a flurry of irrational exuberance that simply escaped logic. The recent drop in the number of new home equity loans indicates not only a market correction, but also a return to economic reality.