Secured Credit Cards using Home Equity
A home equity loan is a loan which is secured. The home is used as collateral to secure the loan. And this equity can also be used to back a secured instant approval credit cards Your home equity is calculated by subtracting the current value and mortgage. Suppose if you own a house worth USD 200,000 and you have mortgage of USD 150,000, the equity amount comes to USD 50,000 on your home. This equity of USD 50,000 would help you to borrow money as a security for the loan. Since your home is used as collateral for the loan, if you do not pay the loan then you could lose your home. This loan is also called as second mortgage.
If you get a home equity loan you can get tax benefits. The interest rates are also lower. Since it is a secured loan the lender is also at a low risk. Credit cards and personal loans charge huge amount of interests. The home equity loan can be utilized for anything from paying off your credit card bills, home renovations, education, investment or buying a Porsche or any other automobile. The interest rates you pay on credit cards are very high, if the home equity loan is used to pay off the credit card outstanding, then it is a good deal.
There are two types of home equity loans:
The Standard Home Equity Loan:In a standard home equity loan the amount of interest is fixed. The monthly payment and loan tenure is also fixed and does not change. You will receive the amount and a fixed monthly installment which you should pay over the life of the loan. For instance: If you apply for a home equity loan amount of USD 30,000 with an interest rate of 7.5%, you will have to pay monthly installment of USD 356.11 over a period of 10 years.
If you have backed your credit card with Cash from this loan you will have the full spending power of the card up to the cash back limit. Home Equity Line of Credit: In this you are approved a loan amount and you can withdraw the money as and when you like. You are supposed to pay the interest only on the amount borrowed. The interest rates vary over the life of the loan. Even fixed interest rates can be negotiated. You can borrow the money, pay off the money in installments and again re-borrow that money. For instance: If you are approved a home equity line of credit for USD 30,000 and you borrow USD 10,000 and are charged USD 6% interest and if you pay back USD 5,000, you still have USD 25,000 line of credit which can be borrowed anytime you require. Normally, the interest rate on home equity line of credit is not fixed.
Interest rates are the most important thing while you apply for home equity loans. The annual percentage rate is the most important rate. The interest rates are not the same for standard home equity loans and home equity line of credit. Due to competition many home equity loan companies offer free processing fees. Introductory rates are also provided to attract more customers. The introductory rates are normally valid for a very short period. After the introductory period is over, you will start paying a higher rate of interest than the introductory rate. Be sure to ask about the introductory rate and its period. How much will it increase after the introductory period? It is best to compare the home equity loans online before applying for it. Comparisons could prove to be very helpful in selecting the best home equity loans. There are many websites, which provide ratings and reviews of home equity loans.
If you avail home equity loans you have to make sure you pay the monthly installments on time. At the end of the tenure of the loan ensure that there is no payment left. Any money, which has not been paid for the sum, borrowed through home equity loans or a home equity line of credit is called balloon payment. Try to avoid balloon payment. For instance get a home equity line of credit of USD 30,000 and withdraw USD 30,000. You make monthly installment for the interest amount only and at the end of the loan life you are said to pay USD 30,000 or else you have to sell the home. The lenders are happy to provide balloon payment. If you accept balloon payment the interest payable monthly, would be very low. But at the end of the loan life you have to pay a huge sum of money. Read all terms and conditions carefully while applying for standard home equity loans and home equity line of credit. If you are unable to understand any points consult a family member or attorney.
Another thing to keep in mind is LTV (loan to value ratio). For instance if the value of the home is USD 200,000 and it has first mortgage amount of USD 150,000 and home equity loan of USD 50,000, then the LTV ratio is 100%. Although many lenders provide loans up to 75-80% but there are many lenders who could provide LTV's of even 120%. High LTV loans means you have to pay more interest and you lose tax benefits.
If a person mortgages his home for USD 100,000 and USD 50,000 home equity loan and the LTV ratio is 120%, and if the home is sold for USD 130,000 subtracted by real estate fees - the total amount owed would still be around USD 20,000 -30,000. Never exceed your loans above the value of the home. It is a very risky proposition.
A person can avail a low rate of interest on home equity loan in interest rate could save thousands of dollars. Compare with many lenders and decide the best offer. There are websites through which you can get instant quotes from various lenders. Always remember it is your money and if the amount you are going to repay is less compared to others, go for it, as you will be saving hard earned money.
If you get a home equity loan you can get tax benefits. The interest rates are also lower. Since it is a secured loan the lender is also at a low risk. Credit cards and personal loans charge huge amount of interests. The home equity loan can be utilized for anything from paying off your credit card bills, home renovations, education, investment or buying a Porsche or any other automobile. The interest rates you pay on credit cards are very high, if the home equity loan is used to pay off the credit card outstanding, then it is a good deal.
There are two types of home equity loans:
The Standard Home Equity Loan:In a standard home equity loan the amount of interest is fixed. The monthly payment and loan tenure is also fixed and does not change. You will receive the amount and a fixed monthly installment which you should pay over the life of the loan. For instance: If you apply for a home equity loan amount of USD 30,000 with an interest rate of 7.5%, you will have to pay monthly installment of USD 356.11 over a period of 10 years.
If you have backed your credit card with Cash from this loan you will have the full spending power of the card up to the cash back limit. Home Equity Line of Credit: In this you are approved a loan amount and you can withdraw the money as and when you like. You are supposed to pay the interest only on the amount borrowed. The interest rates vary over the life of the loan. Even fixed interest rates can be negotiated. You can borrow the money, pay off the money in installments and again re-borrow that money. For instance: If you are approved a home equity line of credit for USD 30,000 and you borrow USD 10,000 and are charged USD 6% interest and if you pay back USD 5,000, you still have USD 25,000 line of credit which can be borrowed anytime you require. Normally, the interest rate on home equity line of credit is not fixed.
Interest rates are the most important thing while you apply for home equity loans. The annual percentage rate is the most important rate. The interest rates are not the same for standard home equity loans and home equity line of credit. Due to competition many home equity loan companies offer free processing fees. Introductory rates are also provided to attract more customers. The introductory rates are normally valid for a very short period. After the introductory period is over, you will start paying a higher rate of interest than the introductory rate. Be sure to ask about the introductory rate and its period. How much will it increase after the introductory period? It is best to compare the home equity loans online before applying for it. Comparisons could prove to be very helpful in selecting the best home equity loans. There are many websites, which provide ratings and reviews of home equity loans.
If you avail home equity loans you have to make sure you pay the monthly installments on time. At the end of the tenure of the loan ensure that there is no payment left. Any money, which has not been paid for the sum, borrowed through home equity loans or a home equity line of credit is called balloon payment. Try to avoid balloon payment. For instance get a home equity line of credit of USD 30,000 and withdraw USD 30,000. You make monthly installment for the interest amount only and at the end of the loan life you are said to pay USD 30,000 or else you have to sell the home. The lenders are happy to provide balloon payment. If you accept balloon payment the interest payable monthly, would be very low. But at the end of the loan life you have to pay a huge sum of money. Read all terms and conditions carefully while applying for standard home equity loans and home equity line of credit. If you are unable to understand any points consult a family member or attorney.
Another thing to keep in mind is LTV (loan to value ratio). For instance if the value of the home is USD 200,000 and it has first mortgage amount of USD 150,000 and home equity loan of USD 50,000, then the LTV ratio is 100%. Although many lenders provide loans up to 75-80% but there are many lenders who could provide LTV's of even 120%. High LTV loans means you have to pay more interest and you lose tax benefits.
If a person mortgages his home for USD 100,000 and USD 50,000 home equity loan and the LTV ratio is 120%, and if the home is sold for USD 130,000 subtracted by real estate fees - the total amount owed would still be around USD 20,000 -30,000. Never exceed your loans above the value of the home. It is a very risky proposition.
A person can avail a low rate of interest on home equity loan in interest rate could save thousands of dollars. Compare with many lenders and decide the best offer. There are websites through which you can get instant quotes from various lenders. Always remember it is your money and if the amount you are going to repay is less compared to others, go for it, as you will be saving hard earned money.
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