What is an Equity Loan?

An equity home loan is a product that allows consumers to use the appraised value of their house for a mortgage to pull out cash. Home equity mortgages are designed for people to get cash out of their property without having to sale their house. This being said, these types of home loans have become a very popular and beneficial type of loan for homeowners.

How to Calculate Your Equity

How to calculate how much equity you have vested in your house can be done by taking the appraised value of your home and subtracting what you currently owe on your home loan. For example, if your home is worth $100,000 and you owe $40,000, then you would have $60,000 in equity.

For some states like Texas, laws limit how much a homeowner can borrower of their equity. Texas laws limit cash out home loans to 80% of the value of the house. For instance, if a home is worth $125,000, the maximum loan amount for a cash out home loan is $100,000.

Why Do An Equity Mortgage Loan?

There are several reasons why a homeowner would want to do a cash out loan. From paying off high interest credit cards, to pulling cash out for home improvements, to going on a dream vacation and sending their child off to college, there are many reasons to do a cash out home loan.

Paying Off High Interest Credit Cards

One of the biggest advantages of doing a cash out home mortgage is the amount of money you can save on a monthly basis by consolidating your debts. If you are like most consumers, you have credit cards with high interest rates. Let’s say that you have a mortgage loan with a balance of $100,000 at 5% with a $550 monthly payment and you also have $50,000 in credit card debt with an average rate of 12%. The average monthly payment on the credit cards with that balance and rate would be around $1000 a month. Your minimum monthly payment for your mortgage loan and credit cards is $1550.

If you were to combine those debts into a cash out home loan with a loan amount of $150,000 and a monthly payments at $805 monthly, you would save about $745 a month. The new cash out home mortgage loan with a payment of $805 a month will save you money compared to a mortgage payment of $550 and credit card payments of $1000. By consolidating the debts into one low payment, you have lowered your monthly payment load.

What could you do with that extra $745 a month?

You could pay off the new home mortgage quicker, or put money into a savings account, or go on that dream vacation you have been waiting to take! Not to mention, the interest you pay on your credit cards is not a tax deduction but the interest you pay on your home mortgage loan is a tax deduction (please consultant a tax consultant for interest deductions).

Home Improvements

Another reason to do an equity home loan is for home improvements. Since you can use the equity from your home to do whatever you want, you can use the equity for home improvements like remodeling you kitchen or even adding in a new swimming pool.

There are many different types of equity home mortgage loans from the cash out refinance to the home equity lines of credit, it is important to talk with a mortgage consultant to see which home mortgage loan program is best for your situation.

David White is a Home Mortgage Loan Consultant with Prospect Mortgage specializing in both cash out home loans and refinance home loans

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Once you checked your credit score, checked the rates and got several quotes, you pretty much know where you stand. If you are not sure of anything, read the articles to find out more what advices given. Confidence in anything is a good ingredient for success. Once you know your credit score and you are eligible for certain rates, you can confidently face the loan managers. You do not need them to tell you what you can or can not get, because you already have a pretty good clue. The best part of it is that the whole process should not take any longer than one hour.

Now you have all the answers for your refinance home loan queries, you can take your time to check the rate and terms of your existing home mortgage loan. Consider all the different alternatives. If you have more than one loan including credit cards and car loans, you could consolidate all your loans into one easy manageable refinance loan. Or if you are happy with the terms of your existing mortgage loan after all but you want to cash out some of the equity in your home, you could consider a home equity loan. Start preparing for an application which would be much successful as you have filled it with knowledge and confidence. You can complete your application online as well. At the end of the day whichever way you fill your application, it will probably end up in the same mortgage processing center. If you are serious about refinancing get the ball rolling, get on to your computer check and discover your options.

JS Lee is a former mortgage broker who now is the webmaster of Refinance Home Mortgage Loan where you can get your free credit score, check today’s rates and get mortgage quotes.

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It is now becoming more apparent that whereas equity release was once considered a lifetime mortgage, people ‘temporarily’ have the opportunity to take advantage of one of providers’ shortcomings in its plan features.

As equity release has been designed to run for the rest of the person’s life, lenders have always seeked to include potentially heavy early repayment charges, should the scheme be redeemed early.

This penalty could be either linked to the change in government gilt rates, expire after a set number of years or as we shall discuss; linked to the Bank of England base rate.

It is this feature that has provided a window of opportunity should people over 55 require short term borrowing facilities.

Experience has recently shown that retired clients are now struggling in retirement; income from investments has fallen, annuity rates are not favourable & pensions are falling in popularity with more reliance on fund performance & contributions than defined benefit schemes.

Increasingly more debt is also evident in this age group & control of finances is becoming more difficult to manage in the present economic climate, credit cards & loans seeming the preferred choice.

Nevertheless, there are options available that can resolve these issues – part time work is becoming more apparent to increase retired incomes. Better management of debts & more consumer information being available as the silver surfers become more online savvy.

Advice on the suitability of equity release schemes will primarily discuss all these options & more. Should none of the alternatives be suitable from the client’s point of view, then at this point, equity release can be considered as a last resort.

However, another one of these options would be downsizing.

This would involve the emotive issue of selling a property that may have been a family dwelling for a generation. However, in order to raise the necessary funds required this may be the correct solution.

Unfortunately, this option may not provide an immediate resolution.

House sales are eventually beginning to rise, however this is marginal at present & for someone who requires funds as soon as possible, today’s marketplace could prove an obstacle.

But all is not lost – & this is where a temporary bridging facility is available & can be provided by a current equity release provider.

Subject to eligibility, the Prudential’s equity release schemes can meet this objective.

By releasing equity now with Prudential you would be benefiting from their link with the Bank of England base rate & early repayment charges.

In summary, the Prudential equity release schemes will only levy a penalty should the Bank of England base rate fall from inception to the time of repayment. With this rate at an unprecedented low rate of only currently 0.5%, it is highly unlikely (but not impossible) that the rate would be lower than 0.5% in the future.

It can therefore be safely assumed that if either of the Prudential’s equity release plans are taken out, whether it be their single lump sum product or innovative increasing cash reserve plan, NO early repayment charge would apply.

Therefore, this can be great news therefore for people who have debt issues or need access to short term funds & not have it affect their tight budgetary constraints. With no monthly repayments required, clients can raise funds this year & after a 12 month period could repay in full or partially, with only a deeds release fee of £105 being levied.

This could tie in conveniently with the property market improving around this period of time.

With Prudential’s interest rates currently as low as 6.3%, this is an excellent time to consider this form of borrowing for eligible people over age 55.

So while the Bank of England base rates remains at just 0.5% it would be advisable to consider the Prudential plan as a means of short term borrowing or bridging finance, depending on requirements.

The Prudential’s Increasing Cash Reserve plan comes with a free valuation & £300 cashback on completion until 31st December 2009.

So all’s not so gloomy in the equity release market as some would suggest.

About The Author:
Mark Greggs is the founder of Equity Release Supermarket who were recently accredited ‘Best Financial Advisers’ at the Equity Release Awards 2008.Mark is an experienced Independent Financial Adviser who has now been providing quality equity release advice for the past 8 years.

Gained with this experience is exclusivity to deals with some of the UK’s leading financial providers.
Mark aims to pass on his experience in assisting the over 55’s decide whether equity release is the right choice for them. For further information or to compare equity release deals available go to: -

w: http://www.equityreleasesupermarket.co.uk
e: mark@equityreleasesupermarket.co.uk

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