Working on your house to renovate or redecorate takes money. If you're short on cash, home equity loans are one option to finance your project. Understand this debt before you proceed to ensure that you don't cause yourself credit problems. |
Home equity loans are a type of financing that gives you a fixed amount of cash by using your house as collateral. This contract entails payments for a specified term, similar to what you would make when taking out a mortgage. A default on this type of financing can lead to foreclosure on your house, just like it would for default on a mortgage.
You will get a one-time lump sum payment from the bank. The terms will specify repayment over a stated period with a fixed interest rate, and your monthly payments will not change for the entire duration of the term. This loan does not enable you to borrow additional money against the value of your house in the same way that a home equity line of credit would. These lines of credit typically have a variable interest rate that changes over the term of the contract.
Banks have specific borrowing limits based on the equity of your house, your house's value, your credit history, and your income. In general, don't expect to borrow more than 85 percent of the equity you have built up in your house.
Shopping for Financing
Lenders will have different terms and rates for home equity loans. Shop around with various lenders to find the most attractive terms and plans. Consider financing with banks, credit unions, savings and loans, and mortgage companies.
Ask how each lender calculates the annual percentage rate for the financing. Expect the APR to include finance charges, points, and fees such as underwriting fees, origination fees, funding fees, recording fees, broker fees, and appraisal fees.
Find out your credit score to give you a position of knowledge as you examine your loan options. Your credit score can vary between 300 and 850, and a score of 720 or more is considered good in general terms. However, different lenders have different standards about credit scores.
Home equity loans can be a simple way to secure cash, but proceed with caution. It is unwise to use this source of money to fund luxury items such as vacations, recreational vehicles, and expensive renovations such as home theaters. The reason you should avoid these expenditures is because they do not give you a return for the money you borrowed.
Pay close attention to the terms offered for this type of second mortgage. Although the repayment period could be as long as 15 or 30 years, it may be significantly shorter. You could only have as little as five years to repay the money at the risk of losing your house.
Wise use of home equity loans would include expenditures on projects that will increase the value of your home, and give you a return for the money.
When considering home equity loans, Houma, LA residents visit Coastal Commerce Bank. Learn more about this service at http://www.coastalcommerce.com/personal/loans/home-equity-line-of-credit.html.
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