How to get the money for home improvements and consolidating debt?
Nationwide Mortgages is one of the most respected Home Equity lenders on the internet for debt consolidation and making home improvements. Our loan officers can show you loans for consolidating your bills with a low interest home equity loan that saves you hundreds of dollars every month. *In addition there may tax deductions for mortgage interest up to the value of your home.
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Take out a Home equity line of credit and make those cosmetic changes that you've been talking about. In most cases, making home improvements increases the value of your property.
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Sunday, September 23, 2007
Home Equity Lines Of Credit
Home equity lines of credit, also called HELOCs. Most lenders that offer home equity loans offer both kinds. A home equity loan for $10,000 and a home equity line of credit for $10,000 are two completely different animals though they have a lot of similar features.
Home Equity Loan
If you apply for and are granted a home equity loan for $10,000 at 7% APR for 15 years, you will receive a check or a deposit to your bank account of $10,000. That is the full amount of the loan that you can ever draw on that particular application. Depending on the terms agreed upon, you may have one to several months before you have to begin repaying the loan. You'll pay a fixed amount every month until the full amount of the loan and the interest charge is paid off. You'll know from the very start how much you'll be repaying.
Home Equity Line of Credit
A home equity line of credit - a HELOC - is much more like a credit card. When you apply for and are granted a home equity line of credit, the bank establishes a 'line of credit' - which functions just the way that a 'credit limit' does on your credit card. You may receive special checks or a plastic card with which to access your line of credit - but you don't receive the full amount at one time.
In fact, you don't have to take any of it immediately. You can draw on the line of credit at any time, up to the full amount of the line of credit throughout the agreed-upon life of the loan. Suppose that you're doing some home repairs. You can use your home equity line of credit to pay for $2,000 worth of roofing tiles. That leaves you $8,000 in your line of credit. Three weeks later, you can use your line of credit to pay for $4,500 worth of windows - and still have $3,500 left that you can borrow against.
If you then start paying back on your home equity line of credit, that money becomes available to you again. If you pay back $1,000 of what you've borrowed, you now have $4,500 on your line of credit.
A home equity line of credit has two 'phases' - there is the draw period, during which time you can draw against the credit limit as long as you stay below the limit. During that time, you can elect to only pay the interest that accrues - or you can make payments on the principal to free it up. Once the draw period is over, you go into the repayment period. During the repayment period, you can't draw against the line of credit any longer, and must make full repayment.
Home Equity Loan
If you apply for and are granted a home equity loan for $10,000 at 7% APR for 15 years, you will receive a check or a deposit to your bank account of $10,000. That is the full amount of the loan that you can ever draw on that particular application. Depending on the terms agreed upon, you may have one to several months before you have to begin repaying the loan. You'll pay a fixed amount every month until the full amount of the loan and the interest charge is paid off. You'll know from the very start how much you'll be repaying.
Home Equity Line of Credit
A home equity line of credit - a HELOC - is much more like a credit card. When you apply for and are granted a home equity line of credit, the bank establishes a 'line of credit' - which functions just the way that a 'credit limit' does on your credit card. You may receive special checks or a plastic card with which to access your line of credit - but you don't receive the full amount at one time.
In fact, you don't have to take any of it immediately. You can draw on the line of credit at any time, up to the full amount of the line of credit throughout the agreed-upon life of the loan. Suppose that you're doing some home repairs. You can use your home equity line of credit to pay for $2,000 worth of roofing tiles. That leaves you $8,000 in your line of credit. Three weeks later, you can use your line of credit to pay for $4,500 worth of windows - and still have $3,500 left that you can borrow against.
If you then start paying back on your home equity line of credit, that money becomes available to you again. If you pay back $1,000 of what you've borrowed, you now have $4,500 on your line of credit.
A home equity line of credit has two 'phases' - there is the draw period, during which time you can draw against the credit limit as long as you stay below the limit. During that time, you can elect to only pay the interest that accrues - or you can make payments on the principal to free it up. Once the draw period is over, you go into the repayment period. During the repayment period, you can't draw against the line of credit any longer, and must make full repayment.
Q&A
Q Do I need the money in a lump sum or in several installments?
A If you need it in a lump sum, lean toward getting a home equity loan. If you need the money in installments, lean toward getting an equity line of credit.
Q Is it for a long-term purpose or a short-term purpose?
A If the money is to be spent on something that will last a long time, such as a roof or a car, an equity loan might be better. If the money is to be spent on something that won't last long, such as a semester in college or a wedding and reception, think about getting an equity line of credit.
Q How big a monthly payment can I handle?
A A home equity loan requires you to pay principal and interest every month for the life of the loan. A home equity line of credit allows you to pay just the interest for several years, if that's what you want to do. It's a whole other question whether it's a good idea to pay only the interest, and not the principal, for a long time.
Q Would a line of credit tempt me to use the money carelessly?
A Naturally, if you answer this in the affirmative, you should consider getting a home equity loan because you pay off the principal and interest over time, and it's not a revolving credit account.
Q Does a variable rate bother me?
A A home equity line of credit has an adjustable rate that most likely changes every time the Federal Reserve raises or lowers the federal funds rate. If you don't like the idea of having a rate that could rise every time the Fed meets, consider getting a home equity loan, which has a fixed rate.
A If you need it in a lump sum, lean toward getting a home equity loan. If you need the money in installments, lean toward getting an equity line of credit.
Q Is it for a long-term purpose or a short-term purpose?
A If the money is to be spent on something that will last a long time, such as a roof or a car, an equity loan might be better. If the money is to be spent on something that won't last long, such as a semester in college or a wedding and reception, think about getting an equity line of credit.
Q How big a monthly payment can I handle?
A A home equity loan requires you to pay principal and interest every month for the life of the loan. A home equity line of credit allows you to pay just the interest for several years, if that's what you want to do. It's a whole other question whether it's a good idea to pay only the interest, and not the principal, for a long time.
Q Would a line of credit tempt me to use the money carelessly?
A Naturally, if you answer this in the affirmative, you should consider getting a home equity loan because you pay off the principal and interest over time, and it's not a revolving credit account.
Q Does a variable rate bother me?
A A home equity line of credit has an adjustable rate that most likely changes every time the Federal Reserve raises or lowers the federal funds rate. If you don't like the idea of having a rate that could rise every time the Fed meets, consider getting a home equity loan, which has a fixed rate.
More Problems With Prime Home-Equity Loans
New data seem to confirm fears that Countrywide Financial is not the only lender facing problems with prime home-equity loans.
Countrywide set off a panic in the stock and bond markets when it said a week ago that 4.6 percent of its prime home-equity loans were delinquent or in foreclosure as of June 30, up sharply from 3.8 percent three months ago and 1.8 percent a year ago.
Although subprime delinquency rates have been soaring, Countrywide was the first major lender to report rising delinquencies among prime borrowers with higher credit scores. But it won't be the last.
Industrywide, the percentage of prime home-equity loans at least 60 days delinquent has more than doubled to 1.14 percent in May from 0.51 percent in May 2006, according to new data from First American LoanPerformance.
Most borrowers use home-equity loans and lines of credit to take cash out of their existing homes or to buy a home when they don't have a big enough down payment to avoid mortgage insurance. In the latter case, the home-equity loan is added to the first mortgage and often called a piggyback. LoanPerformance found rising delinquencies in both types of home-equity loans.
If home-equity delinquencies spread, lenders might continue to raise rates and reduce the amount of money they're willing to lend.
Prime borrowers are still defaulting at a much lower rate than subprime borrowers with low credit scores. There's no strict cutoff, but mortgage companies usually consider borrowers with FICO scores below 620 (on a scale of 350 to 850) to be subprime.
Almost 24 percent of Countrywide's subprime mortgages were delinquent as of June 30, up from 15.3 percent the previous year.
Industrywide, subprime delinquencies roughly doubled to 16.3 percent in May compared with 8.2 percent the previous May, according to LoanPerformance. (Countrywide's rate is not directly comparable to the industry rate.)
Delinquency rates also have been rising for Alt-A loans, which are loans that go to borrowers with prime credit scores but have other nontraditional features, such as no income documentation or 100 percent financing.
Delinquency rates for prime first mortgages, however, have barely budged. Until last week, most analysts weren't focusing on the home-equity market. Countrywide's announcement was the first clear evidence that mortgage problems could spread to prime.
"I don't think (Countrywide's announcement) should have been a surprise, but up until a month and a half ago, the majority of people were saying this was just a subprime problem," says Joshua Rosner, managing director of research firm Graham Fisher & Co.
Joseph Mason, an associate finance professor at Drexel University, expects to see more problems with mortgages that were disguised as prime.
"Much of prime is not really prime. The Alt-A base (has) been found to be really subprime. And much of the subprime has turned out to be flat-out fraud," Mason says.
"Borrowers over-borrowed, brokers over-lent, investment banks oversold performance and rating agencies overrated (mortgage-backed securities). What we thought was quality was not quality," he says.
Rosner and Mason, who have written papers together, argue that banks and other institutions are sitting on large mortgage losses they have not realized because they are relying on faulty valuation models. At some point, they will be forced to realize those losses and the scope of the problem will become clearer.
In the meantime, lenders are adding risk premiums - higher interest rates- to all types of loans, even mortgages.
"There are true prime credits in the economy, not what has been marketed as prime. The market overall is charging a premium for all credits because of the difficulty in sorting out what is truly prime and what is marketed as such," Mason says.
"I just bought a house, moved in last week. I could have gotten a much better rate six months or a year ago," he adds.
Holden Lewis, a senior reporter for Bankrate.com, says it does appear that lenders have been adding a risk premium to home loans.
The interest rate difference between the average prime 30-year fixed-rate mortgage and the 10-year Treasury note was 1.83 percent last week, up from 1.65 percentage points four weeks ago.
The difference between the average $30,000 home-equity loan and the 10-year Treasury was 3.12 percentage points last week compared with 2.95 percentage points four weeks ago.
Rising home-equity defaults could cause lenders to raise rates even higher and demand stiffer terms.
"At some institutions, it's already hard for anyone to get above 90 percent loan to value," Mason says.
Countrywide set off a panic in the stock and bond markets when it said a week ago that 4.6 percent of its prime home-equity loans were delinquent or in foreclosure as of June 30, up sharply from 3.8 percent three months ago and 1.8 percent a year ago.
Although subprime delinquency rates have been soaring, Countrywide was the first major lender to report rising delinquencies among prime borrowers with higher credit scores. But it won't be the last.
Industrywide, the percentage of prime home-equity loans at least 60 days delinquent has more than doubled to 1.14 percent in May from 0.51 percent in May 2006, according to new data from First American LoanPerformance.
Most borrowers use home-equity loans and lines of credit to take cash out of their existing homes or to buy a home when they don't have a big enough down payment to avoid mortgage insurance. In the latter case, the home-equity loan is added to the first mortgage and often called a piggyback. LoanPerformance found rising delinquencies in both types of home-equity loans.
If home-equity delinquencies spread, lenders might continue to raise rates and reduce the amount of money they're willing to lend.
Prime borrowers are still defaulting at a much lower rate than subprime borrowers with low credit scores. There's no strict cutoff, but mortgage companies usually consider borrowers with FICO scores below 620 (on a scale of 350 to 850) to be subprime.
Almost 24 percent of Countrywide's subprime mortgages were delinquent as of June 30, up from 15.3 percent the previous year.
Industrywide, subprime delinquencies roughly doubled to 16.3 percent in May compared with 8.2 percent the previous May, according to LoanPerformance. (Countrywide's rate is not directly comparable to the industry rate.)
Delinquency rates also have been rising for Alt-A loans, which are loans that go to borrowers with prime credit scores but have other nontraditional features, such as no income documentation or 100 percent financing.
Delinquency rates for prime first mortgages, however, have barely budged. Until last week, most analysts weren't focusing on the home-equity market. Countrywide's announcement was the first clear evidence that mortgage problems could spread to prime.
"I don't think (Countrywide's announcement) should have been a surprise, but up until a month and a half ago, the majority of people were saying this was just a subprime problem," says Joshua Rosner, managing director of research firm Graham Fisher & Co.
Joseph Mason, an associate finance professor at Drexel University, expects to see more problems with mortgages that were disguised as prime.
"Much of prime is not really prime. The Alt-A base (has) been found to be really subprime. And much of the subprime has turned out to be flat-out fraud," Mason says.
"Borrowers over-borrowed, brokers over-lent, investment banks oversold performance and rating agencies overrated (mortgage-backed securities). What we thought was quality was not quality," he says.
Rosner and Mason, who have written papers together, argue that banks and other institutions are sitting on large mortgage losses they have not realized because they are relying on faulty valuation models. At some point, they will be forced to realize those losses and the scope of the problem will become clearer.
In the meantime, lenders are adding risk premiums - higher interest rates- to all types of loans, even mortgages.
"There are true prime credits in the economy, not what has been marketed as prime. The market overall is charging a premium for all credits because of the difficulty in sorting out what is truly prime and what is marketed as such," Mason says.
"I just bought a house, moved in last week. I could have gotten a much better rate six months or a year ago," he adds.
Holden Lewis, a senior reporter for Bankrate.com, says it does appear that lenders have been adding a risk premium to home loans.
The interest rate difference between the average prime 30-year fixed-rate mortgage and the 10-year Treasury note was 1.83 percent last week, up from 1.65 percentage points four weeks ago.
The difference between the average $30,000 home-equity loan and the 10-year Treasury was 3.12 percentage points last week compared with 2.95 percentage points four weeks ago.
Rising home-equity defaults could cause lenders to raise rates even higher and demand stiffer terms.
"At some institutions, it's already hard for anyone to get above 90 percent loan to value," Mason says.
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