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Home Equity Loans

A home equity loan allows you as a homeowner to get a loan by using the equity in your home as collateral. The equity consists of whatever funds you have invested in your property in order to own or improve it.

Since it is a debt against your own home, which you are in actual possession of, a home equity loan is a secured debt. The property can be required to be sold if the creditor wants the money back that you have borrowed after you have mistreated your obligations.

A home equity loan can be obtained in a lump sum or used as a revolving home equity line of credit.

A home equity loan can be either of the following:

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Home Equity Conversion Mortgages

The FHA’s home equity conversion mortgage program (HECM) is designed to let older homeowners convert equity into cash without selling their homes. HECM loans are a type of reverse mortgage, and are made by banks, credit unions, and other typical mortgage lenders.

A home equity conversion loan (HECM) allows homeowners to convert a portion of their home equity into cash that’s paid back to them by the mortgage company. As long as they live in the home, they don’t have to repay the conversion mortgage. As a result, the HECM offers the opportunity to spend equity without selling or moving.

To be eligible for the HECM, a homeowner must be at least 62 years old and agree to receive free mortgage counseling from a HUD approved agency.

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Second Mortgage

Home ownership has the benefit that it allows you to use your home as collateral and borrow needed money against it, by taking a second mortgage.

Second mortgage interest rates
The 2nd mortgage interest rates on the market today are affordable. In some cases, interest payable is below the prime lending rate.

Conversion of the equity or right of ownership of your home into a line of credit is now possible. This allows you to borrow against your property whenever you may need to.

It is important to remember that your house will be pledged as security for such a loan, so you must choose the best financial deal and keep your budget limitations and long term income in mind.

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Pay Off Debt with a Home Equity Loan

The consumer is the v8 engine of our economy. The more people buy, the better our capitalist system works. While consumerism works well on a macro level, sometimes people overextend themselves on the micro level and accumulate debt. If you need to get yourself out of the red, consider using a home equity loan.

Being a good American takes a lot of money. Our businesses thrive when consumers are happy and flush with cash. Even in the harrowing days that followed 9/11, our politicians urged us to get out and go shopping, because of short terms goals.

Pumping money into the economy is a great way to help America though a crises, but it can hurt you on a personal level if you’re not careful. Very often, people spend too much money on shopping trips, and acquire debt that they simply can’t pay off.

If you’ve been a loyal consuming American who’s now heavily in the red, a home equity loan can help you get back in the black.

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Home equity loan fees

Here is a brief list of possible fees that may apply to your home equity loan:

• Appraisal fees
• Originator fees
• Title fees
• Stamp duties
• Arrangement fees
• Closing fees
• Early pay off fees
• Etc.

Surveyor and conveyor or valuation fees may also apply to loans, some may be waived.

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Home equity plan

If you are in the market for credit, a home equity plan is one of several options that might be right for you.

Before making a decision, however, you should weigh carefully the costs of a home equity line against the benefits.

Shop for the credit terms that best meet your borrowing needs without posing undue financial risks.

And remember, failure to repay the amounts you’ve borrowed, plus interest, could mean the loss of your home.

What is a home equity line of credit?
A home equity line of credit is a form of revolving credit in which your home serves as collateral.

Because a home often is a consumer’s most valuable asset, many homeowners use home equity credit lines only for major items, such as education, home improvements, or medical bills, and choose not to use them for day to day expenses.

With a home equity line, you will be approved for a specific amount of credit.

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Costs of establishing and maintaining a home equity line

Many of the costs of setting up a home equity line of credit are similar to those you pay when you buy a home. For example:

• A fee for a property appraisal to estimate the value of your home
• An application fee, which may not be refunded if you are turned down for credit
• Up front charges, such as one or more points (one point equals 1 percent of the credit limit)
• Closing costs, including fees for attorneys, title search, mortgage preparation and filing, property and title insurance, and taxes

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Lines of credit or traditional second mortgage loans?

If you are thinking about a home equity line of credit, you might also want to consider a traditional second mortgage loan.

This type of loan provides you with a fixed amount of money, repayable over a fixed period.

In most cases, the payment schedule calls for equal payments that pay off the entire loan within the loan period.

You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In deciding which type of loan best suits your needs, consider the costs under the two alternatives.

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Disclosures from lenders

The federal Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable rate feature.

In general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened.

If any term (other than a variable rate feature) changes before the plan is opened, the lender must return all fees if you decide not to enter into the plan because of the change.

When you open a home equity line, the transaction puts your home at risk. If the home involved is your principal dwelling, the Truth in Lending Act gives you 3 days from the day the account was opened to cancel the credit line.

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Homa Equity loans vocabulary

Annual membership or maintenance fee
An annual charge for access to a financial product such as a line of credit, credit card, or account. The fee is charged regardless of whether or not the product is used.

Annual percentage rate (APR)
The cost of credit, expressed as a yearly rate. For closed end credit, such as car loans or mortgages, the APR includes the interest rate, points, broker fees, and other credit charges that the borrower is required to pay.

An APR, or an equivalent rate, is not used in leasing agreements.

Application fee
Fees charged when you apply for a loan or other credit. These fees may include charges for property appraisal and a credit report.

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