Arm Loans; What is A Home Equity Loan?
It hasn't been that long since
finances were mainly controlled by the husband. Due to this fact, many
women had trouble establishing credit in their own name. Even when loans
were made available to women, they still were coerced into having co-signers
or getting a loan in both their name and their husband's name.
Loans are a lot more available
to women now. ARM loans are just as available to women as they are their
counterparts. Many women now own their own homes and in their own name.
===
A home equity loan is a
one-time lump sum credit a homeowner can acquire by placing their residence
as the guarantee for payment. This type of credit is most appealing to
consumers who may have poor credit standing, but need a large amount of
money. Aside from these benefits, the borrower gains a lower interest rate
and the possibility of tax-deductible interest.
Why do lenders offer large amounts and
charge lower interest rates? Because lenders understand that most homeowner
debtors diligently pay their loans rather than risk losing their homes.
Besides, the borrower cannot tuck the house away or conceal it.
The three biggest advantages a home equity
loan offers are:
Large Loan Amount
The borrower can obtain as much as 85%
appraised value of their home, minus the unpaid mortgage payments owed
on the first mortgage. However, there are other factors as well that the
lender will assess, such as the borrowers’ credit standing, monthly income,
or ability to pay and state of unsettled loans. If the borrowers’ credit
record is spotty, the loan will necessarily be smaller.
Low Fixed Interest Rate & Tax-deductible
.
This type of loan has a lower interest
rate, in comparison to personal or credit cards loans. Additionally, a
fixed interest rate assures you that the payment remains constant right
until the end of the entire loan. This makes it easy to work the monthly
payments into your budget. Another advantage a borrower can claim are tax
deductions on the interest of the loan for as much as $100,000.00. However,
do not assume that the advertised APR (annual percentage rate) is the real
rate. Ask and shop around.
Ease of Use
The one-time release of the entire loan
will enable the borrower to consolidate existing debts, pay for home improvements,
or use the amount for emergencies, or any big-ticket items.
The two real disadvantages are:
Home Foreclosure
If you default in paying the principal
and interest fees for the loan, you will lose your home. This is certainly
not the ideal type of loan for a couple who might use their retirement
money to bail themselves out of the difficulty, or first time homeowners,
who are inexperienced in handling finances. That is why, when you negotiate
with the lender, you should ask about the penalties attached for late payments,
as well as the conditions in defaulting payments and have all your agreements
documented.
NOTE: You
should have a credit score of at least 580 to be considered for a loan.
If you don't KNOW your credit score, you can find out instantly here.
Long Term Repayment Period
The convenience of repaying the loan, which
can vary from a 15 to 30 years period, is ultimately more expensive, because
you are taking longer to pay. Another negative possibility is, if the real
estate market bottoms out, you will be paying for a house which is worth
a lot less. This could spell disaster especially if you are intent on selling
the house. On the other hand, you are required to pay the remaining loan
balance if you put the house up for sale.
Given what you now know about home equity
loans, become a more prudent borrower. Carefully consider why you need
the loan and if you can comfortably meet the monthly payments. Then educate
yourself on the options that will best serve your financial needs and still
leave you with your home.
Ben Anton
|
