Filed under: Home Equity Loan
Question: What are the advantages of refinancing in regards to home improvement? Due to my credit history , I was offered to refinace at 11% which is to higher than my present mortgage? I badly need a new roof, but what to get it with the least debt . I have tried saving, but it is not working out. Any suggestions?
Answer: IF you have equity in the home and need more money than you have available, AND it is for home improvements, I would look at a home equity loan rather than refinancing the primary mortgage. (At least in this situation where the credit rating is not as good as it could be) You would have a lower amount of money borrowed at the higher rate, and you should tailor the length of the loan so that it will be paid off in a much shorter time frame. Generally, if the total amount borrowed against the home is less than the appraised value of the home, AND the proceeds of the home equity loan are used for home improvements, then you can deduct your interest on the home equity loan in addition to your mortgage interest.
January 1, 1970
Question: On the house, she kept borrowing against the equity, so I guess the laws are >different than they are for a straight mortgage. >Lee
Nope. A reverse mortgage is a perfectly legitimate method for seniors to obtain more money to live on or whatever. The equity in her house was hers and she had the attitude that she should enjoy it. It’s apparent that she derived pleasure in racking up those bills and I have no doubt she enjoyed it. Good for her because she tried to die broke which is now considered the American way. I’m going to give it a try to which means if at all possible, I’ll spend my last dollar on my last day. Take joy in the obvious fact that you mother enjoyed buying things believing it wouldn’t hurt you. Take it that way because she owed you nothing.
Answer: Oh, I couldn’t agree more. Seriously. My parents provided for me with my education (thank god Elaine seems to have disappeared). I was really concerned that my mom would have to go to a nursing home if she got to ever leave the hospital. I didn’t know how in the world we would pay for that. And believe me, my mother enjoyed buying things. 2 weeks before she died, she had an aide wheel her down to the gift shop at the hospital and when I went to see her later that day, she told me to go down there and pay them. She bought $30 worth of knick-knacks. Thank god she never saw the gift shop at the large hospital where she ended up. Mostly she bought crap at Wal-Mart. Lee *anybody need any romance novels? I now possess about a million
January 1, 1970
Question: Does anyone know a site where I can get unbiased information concerning home equity loans?
I’m not interested in any responses from mortgage reps, etc. I’d like to find out about the costs (hidden and otherswise), requirements.
Thanks for your help.
Answer: Home equity loans are pretty straightforward these days. Most banks (or their web sites) can explain them fairly clearly. BankBoston has a calculator that lets you plug in the numbers and will tell you what you can do. Most bank web sites can do this.
Just remember that you are basically INCREASING the mortgage on your home. So, it’s not “free” money.
If you have good credit most banks offer no-cost home equity loans at or near prime and these are indeed no-cost. I just did one with BankBoston. Called in, gave the info, they sent out a confirmation letter and within in a few weeks went down and signed the papers – took about 15 min.
The only confusing thing to newbies is the amount of equity you have in the home and the max amount they will loan you. The typical home equity loan is an “80%” loan. This means that the bank will give you a home equity loan to the amount such that the SUM of your mortgage principle and home equity loan are 80% of the appraised value of your home. Yes, a no-cost loan includes a free appraisal.
For, example,
Your home is appraised $200K 80 % is 160K your mortgage principle 125K
Max equity loan is $35K
There’s usualy a minimum loan, i.e. about $25K
Some banks may offer %100 or even 125% BUT the interest rate on these is higher than prime.
January 1, 1970
Question: Does anyone know where I can get the best rates for a personal or debt consolidation loan?
Answer: Rob, the best rates are almost always from one’s relatives or one’s close personal friends. How much do you need to borrow? I have many friends who were in the fortunate situation of receiving interest free loans from their parents, & this is an area where the commercial interests really just can’t compete. This is almost always amounts under $10,000, however.
Next best IME is (for short term loans) I have received many offers lately for a 3.9 percent interest rates on credit card advances. This interest rate would be in place for only 3 to 6 months however. Some of the cards sneak in a cash advance fee, so you need to read carefully. Generally, there is such a fee unless you are responding to a specific offer. Check your mailbox!!!
Next best after that is probably the home equity loan, which is still pretty low & which can also be used as a tax deduction.
Once you get away from loving parents, desperate credit card companies, & home equity loan sellers…you’re getting into some pretty high interest rates. The low interest rates being paid by banks do not seem to have trickled down to the little people.
Yes, I am aware that my advice will only be helpful to *some* people in *some* special circumstances. Alas, I do not know of an answer that will help everyone, but I’m sure others can provide more avenues to check out? Good luck, Leigh
January 1, 1970
Question: My bank is offering home equity loans at 6.9% with ten-year amortization. I can see how that might make it attractive to pay off other, higher-interest loans; seems like it might be a good idea indeed, for some.
Answer: For SOME is the key here. I am a CPA, and will tell you that more people than you think will take out a HE loan to pay off their cards so they can just Maxim out again. Unless I know the person very well, I recommend consolidating as much as you can onto the lowest interest rate visa you can qualify for. As the cards are paid off, cut up (and cancel) all but two VISA type cards…one that you pay off each month, and one for emergencies.
This may cost extra in interest, but is safer for many people.
January 1, 1970
Question: I have an existing 5 years’ balloon mortgage on the prime residence, with 4.25% >interest rate. I’m planning to pay it off fully in 5 years, making extra >payments. >ING Direct is offering home equity loan with 4% interest rate and no >points(http://home.ingdirect.com/open/open.html) . This sounds like a very good >deal, they confirmed there are no prepayment fees, and extra payments would >still go towards the interest. Are there any caveats in changing conventional >mortgage to a home equity loan?
Answer: You can do better. Plenty of banks and credit unions offer Prime minus 0.5%. That would make the rate 3.5%. Also, you didn’t mention whether you needed to get a HELOC for more than 80% loan-to-value. Given that you expect to pay off within 5 eyars, I assume that you have huge equity in your house and don’t care whether the limit is 80% or 90%.
January 1, 1970
Question: My fiancee and I are in a similar situation. After 4 years, we have got past debts of 12,000+ (some we did not know about until we started getting a credit report) down to 2,500. He had a bankruptcy in 97, but we were still able to get two loans for cars, one payment is based on the balance, we have lowered that by $100 a month and are now looking to buy a house. Our payment history looks really good, and some companies would finance us for a 3% down loan, at 6.5% (we are looking at 100,000 range homes) if we could guarantee that we would pay off the last collection bill within 6 months. We don’t want to do that because if something happens, and we lose some income, that is the one bill that we wait on. My fiancee just got a big raise, and we are trying to decide how to manage the extra money. Put it into savings for a down payment and closing costs, or pay off the last bill, and then start saving?
Answer: Why do I find this statement very scary? How can you have debts that you don’t know about until they appear on a credit report?? This is scary as well.. Would seem that you’re living paycheck to paycheck, with NO emergency fund to cover you if you “lose some income”. Pay off your debt and start an emergency savings fund. Then after the bill is paid off, start saving for a downpayment, PLUS an additional $3-5k for closing costs, and all the other stuff that comes with home purchases. My impression is that you’re making progress, but you’re not really ready to buy a home and incur that kind of a debt and financial committment.
January 1, 1970
Question: I have finally convinced my husband to cut up his credit cards so we can work on whittling down his 10k card debt. We would like to transfer the debt to a low interest rate card, the lowest we can find. Does anyone have a suggestion where we might be able to find such a card? I heard there are some banks in Arkansas with low rates. If you know of such a bank, please let me know. Or, does anyone have a better suggestion for getting these debts paid off?
Answer: Another suggestion, should you be able to do this, is a home equity loan. They’re pretty easy to get around these parts (Milwaukee) and are low interest (IIRC, currently 6.5% at my bank) and the interest may be tax-deductible. I don’t know how easy something like this would be for you, but it might work, and it’s a lot cheaper than more credit cards.
January 1, 1970
Question: I have 30K and 9 years remaining on a 9.875/15 yr home loan. I >want to refinance at a lower rate for 10 yrs and pay off the >loan early (5 years or so) depending on my financial status in >the coming years. In working with the loan officer of a local >bank, they suggested I take out a home equity loan at 8.9% for >the full amount for 10 years and then pay it off early if I so >desired. Per the calculations this makes sense as their are >no fees with this loan as opposed to the regular mortgage >refinance. >My question – are there any problems with this approach? I >can’t come up with any.
Answer: Frequently home equity loans are issued on a floating rate. You may want to see if this is true in your case. You may end up running a considerable risk if the interest rates change sharply upward during the time you are paying on the loan
January 1, 1970
Question: I am lucky enough to have paid off my $230,000 house and have bought some land which I owe $40,000 on but should pay off in the next year or so. I plan to build a new house on the land and sell my existing one which should result in a small < $30,000 or non-existent mortgage on the new home. I have an income that exceeds 100k per year, but I am worried that I am being too conservative with my money. I wonder should I take out a bigger mortage just to have some money to invest with ?
Thanks for any advice,
Answer: Good Question.
I say max out the mortgage; but make sure that your resulting investments are very conservatively balanced. Here is my logic.
1. The actual interest paid on a 7 percent mortgage is only about 4.7 percent; because of the home mortgage interest tax deduction.
2. With a portfolio of 1/3 bonds and 2/3 equities, your average annual return should be about 8-9 percent.
January 1, 1970
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