Seize The Benefits Of Your Home Value

It can provide you with additional finance for any purpose you may think of by securing a loan for you. This will provide you with competitive interest rates and low monthly payments so you can enjoy cheap financing. In order to understand how home equity loans work, you need to be familiar with certain concepts. Mainly, you should know what equity is and how it is calculated. Then, you’ll be able to understand why home equity loans provide such benefits and the risk that requesting this kind of loans implies.

Defining Equity

Equity is the difference between the value of an asset and the amount of debt that it secures. It is the remaining value of a property when the property’s value exceeds the amount of debt that the asset guarantees. This equity can be used to secure another loan. Just like a home is used as collateral for a home loan, the same property (specifically its equity) can be used as collateral for a home equity loan or line of credit.

It is necessary to note that the value of the property to take into account is the appraised value of the asset (the current value) and not the purchase price of the property. The value that is taken into account is the amount of money you could get if you were to sell the property in the market.

Calculating Equity

In order to calculate equity you need to subtract any mortgages or liens hold against the property to the appraised value of the asset. For example: If you own a house worth $100,000 which has a mortgage loan with $60,000 of outstanding debt, the equity on your home is equivalent to $40,000. This remaining amount can be used to secure another loan.

Bear in mind that mortgages are not the only debts that can be subtracting value from your property, outstanding home equity loans, other liens and judicial embargos can reduce the amount of usable value of the asset. In order to correctly calculate the equity you need to consider all the above when subtracting the overall debt held against the property.

Benefits of Home Equity

Home equity loans provide low interest rate financing compared to unsecured loans. The interest rate charged for home equity loans rarely exceeds 12% while the interest rate charged for unsecured loans can usually reach 18%, 20% or even more. The secured nature of home equity loans keeps interest rates low by reducing the risk involved in the lending process.

Home equity loans also offer higher loan amounts and longer repayment programs. This combination provides great flexibility as you can request significant amounts and obtain low monthly payments by extending the loan length. When it comes to unsecured loans not only you can’t obtain high loan amount but you can’t repay it throughout long repayment programs either.

Risk of Repossession

The main concern that equity loan imply is that given that the loan is secured with your home, if you default on the loan you risk repossession of the property. Thus, whenever considering requesting a home equity loan, you should make sure that you’ll be able to repay the loan and that you put away some savings for unexpected expenses that otherwise may compromise loan repayment.

Four Truths About Mortgage Refinancing

Many home buyers close their loans, make their payments and don't think about their mortgages again. They don't consider refinancing when they should. If you are among these inattentive homeowners, here are four truths about mortgage refinancing that may surprise you.

Truth #1 – Mortgage Refinancing can save you money. If interest rates have dropped since you got your original loan, refinancing (Neu finanzieren) can reduce your monthly payment. When you refinance, you can also choose to shorten your loan term, meaning you will pay less money in interest over the life of the mortgage.

You could also save money by switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. The interest rate on an ARM is based on an index such as the LIBOR or the U.S. Treasury Bill. If they go up, so do your payments. By refinancing to a fixed-rate mortgage, you can prevent payment increases. (Your monthly payment might still increase due to changes in property taxes or insurance, but your principle and interest amounts will stay the same.)

If your original mortgage was for more than 80 percent of your home’s value, you are paying private mortgage insurance (PMI) as part of your monthly payment. As the value of your home increases and the principle on your mortgage decreases, you can get rid of PMI by refinancing for less than 80 percent of your home’s value.

Truth #2 – Mortgage Refinancing is a smart way to access your equity. In the second quarter of 2006, 88 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances. Homes refinanced during this time had appreciated 33 percent on average since the original mortgage was taken out. The median age of the mortgage was 3.2 years.

“Borrowers who are looking for an inexpensive way to finance home improvements or business investments, or to consolidate high cost debt, are turning to cash-out refinance,” said Amy Crews Cutts, Freddie Mac deputy chief economist. “These borrowers are often willing to refinance into higher rates on their first lien mortgages. . . This is the second consecutive quarter in which the median refinance borrower increased the rate on their first lien mortgage.”

Truth #3 – Mortgage Refinancing is still very popular. According to Frank Nothaft, Freddie Mac chief economist, “The staying power of refinance activity has been much stronger than we initially thought . . . borrowers are reacting to both incentives to cash out home equity through refinance and incentives to change their mortgage as they hit an interest rate adjustment.

Freddie Mac estimates that $500 billion in first lien mortgages will adjust this year and another $650 billion in second liens will see at least one rate change this year. Nationally, home values increased 10.2 percent over the last twelve months.

Truth #4 – Mortgage Refinancing is simpler than getting your original mortgage. Mortgage refinancing is almost always simpler, cheaper and quicker than getting an original mortgage. The process can be handled online at sites like Simple Mortgage Refinancing. The site has helpful articles and offers free, no-obligation loan quotes.

Refinance Mortgage Broker: Beware Mortgage Broker Banks When Refinancing Your Mortgage Loan

If you are in the process of refinancing your mortgage and are working with a broker, your mortgage broker could be robbing you blind without you even knowing it. Broker Banks are a special type of lender that is nearly indistinguishable from other mortgage brokers and are exempt from all disclosure laws protecting homeowners in the United States. Here’s how to protect yourself from broker bank fleecing when refinancing your home loan.
When the Real Estate Settlement Procedures (RESPA) legislation was making its way through Congress and the Senate, your friendly neighborhood bankers lobbied intensely to be excluded from the proposed legislation. Millions of dollars changed hands and when RESPA became a law, lo and behold banks were exempt from the newly founded disclosure laws that protect American homeowners from predatory lending practices.
The RESPA loophole for Banks is why you should never apply for a mortgage with your Bank, but what about mortgage brokers? Mortgage brokers are required to disclose under RESPA, but wanted the same loophole afforded to your bank; as a result, Broker-Banks were born. Broker-banks are nearly indistinguishable from any other mortgage broker except for one key factor. Broker-Banks are exempt from the disclosure laws provided by RESPA. This means if a mortgage broker charges you a $1,000 fee for their services, they are required by law to disclose this fee to you. A Broker-Bank can charge you the same $1,000 fee without you even knowing it.
Broker-Banks take advantage of this loophole by exploiting the interest rate you are sold with your mortgage. That’s right; you are sold an interest rate, not qualified by the lender. The Broker-Bank receives a bonus for selling you a loan with a higher interest rate. For every .25% extra you agree to pay on your mortgage interest rate, the Broker-Bank receives a bonus of as much as 1-1.5% of your loan balance. The Broker-Bank overcharges you, pockets a bonus from the lender, and no one is the wiser.
This is why you should never do business with a Bank or a Broker-Bank when it comes to your mortgage loan. The bad news is that Broker Banks are nearly indistinguishable from mortgage brokers. How can you tell if your mortgage broker is an actual broker or a Broker-Bank? You can learn this and more by registering for a free mortgage guidebook.