Mortgage Home Equity Loan - Lump Sum Cash for Home Improvement, Vacation and Paying off Bills


by Richard Cunninghamm - Date: 2007-01-23 - Word Count: 521 Share This!

When you need money for improvements to your home, to take a trip or to pay off your bills, there's no need to worry about getting a loan at high interest rates. If you have been paying off your mortgage and the value of your home has increased, you have equity built up. You can get a home equity loan from the same lender that holds your mortgage or you can go to a different lender. The amount of money you can borrow depends on the difference in what you still owe on your mortgage and the value of your home on the real estate market.

Let's say you paid $200,000 for your home. You still have $100,000 outstanding on the mortgage, but if you went to sell your home, the value has increased to $250,000. This gives you $150,000 of equity. Under the usual home equity loan, you would qualify for 80% of the equity, which is 120,000, but there are also home equity loans, where you can qualify for 125%. This would mean you could borrow $187,500.

A home equity loan means you would get this money as a lump sum. Just think of all the improvements you could make to your home with that amount of money. In addition, all the improvements would increase the value and therefore add equity. Computing equity is not really as simple as described in the preceding paragraph. Lenders may also include your other debts in the computation, cutting down the amount of equity. However, you can see how it is another way to get a loan for your needs.

In order to qualify for a home equity loan, you need to have 20% of your mortgage paid off. You also need to provide proof of your income and an appraisal has to be done on your home to determine the current value. With a home equity loan, you have fixed payments over a specific term, which can be anywhere from one year to 30 years. The interest rate can be fixed or adjustable and you may be able to claim it on your taxes.

There are closing costs associated with a home equity loan, but they are cheaper than with a first mortgage. One thing you do need to know is that once you get a home equity loan and pay it off, you can't get another one in the future. This is a one-time thing for the home you are using as collateral.

Many people use the money from the home equity loan to make major improvements to their home. Then the value of the home is up considerably allowing them to sell at an increased profit. You can pay off the mortgage and the loan and still have funds left over. This allows you to put a down payment on a more expensive home. After a while, you can repeat the process and get another loan for this home if you wish.

Quite often homeowners struggle with trying to manage their debt, not realizing that they have a valuable asset in their home. This could give them the funds they need to make life much easier.


Related Tags: equity, home improvement loan, mortgage financing, home equity load, refinance home equity loan

Richard Cunningham is a successful entrepreneur and publisher of several profitable websites including AutoInsuranceQuoteRanger.com. Visit his website to learn more about San Diego auto insurance.

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