Most home equity loans require a very good to excellent credit history and a reasonable loan-to-value ratio. In some areas, these loans are referred to as second mortgages.

Many people get confused between these loans and the home equity line of credit, the difference being that a line of credit can be drawn upon for funds at any time and often comes with an adjustable interest rate, whereas a house equity loan is a one time fixed lump-sum, usually with a fixed interest rate.

As for whether or not this type of loan is suitable for you really depends on your circumstances. If you have a lot of equity built up in your home and you’d like to release some of it, then using your equity is probably a good option. Just be aware that banks view these loans as slightly more risky than other types of loans, and will therefore charge a higher interest rate. It’s generally advised to use the funds for major necessities only, as opposed to things like holidays or boats.

Conclusion

Home Equity Loans are great for those of us who have nearly paid off their homes and are looking for quick funds to renovate the home, pay off some medical bills or other larger expenses.

First Choice Loans is a mortgage broker in Perth that offers business loans, home equity loans and investment loans.

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What is a Home Equity Installment Loan?
A home equity installment loan is a loan that uses the equity you already have in your home as collateral. With your home’s equity as a guarantee, lenders are willing to offer larger loans at lower interest rates than many other types of loans.

Unlike a home equity line of credit, most home equity installment loans are standard, one-time loans that are approved for a given amount and must be repaid over a pre-arranged schedule of installments ranging from three to 30 years, similar to a primary mortgage or car loan. Installment payment amounts include both principal and interest.

Lenders offer installment loans based on some percentage of your home’s appraised value, less any outstanding mortgage amounts. The maximum loan amount is calculated according to the loan-to-value (LTV) ratio, which may be as high as 80-90%. This means if your home is worth $150,000 with a $100,000 mortgage balance ($50,000 in equity), at 90% LTV you could potentially qualify for a home equity installment loan for up to $45,000 ($50,000 x 90%).

Who Uses Home Equity Installment Loans?
This type of loan can be used to finance anything from a home renovation to a wedding. Below are some of the main reasons consumers secure this type of credit:

• Finance a home renovation
• Pay a child’s college tuition
• Pay off other, higher-interest debts
• Purchase a second home or rental property
• Invest in a business opportunity
• Pay for a wedding, anniversary, vacation, or another big celebration or event

Installment loans are a good option if you have a large, lump payment that you need to make now but would like to pay off over time. They’re also ideal in a market with unstable interest rates, allowing you to lock in a low fixed rate.

Advantages and Disadvantages
There are pros and cons to home equity installment loans, and times when this type of borrowing is more suitable than others. Read on for some tips to help you determine whether this type of loan is right for you.

A home equity installment loan is ideal for a one-time purchase or investment, such as a home renovation or the payoff of a high-interest debt, where you will only need to draw funds once and are prepared to pay it back on a fixed schedule. An installment loan is probably not a good idea for frivolous purchases that may be difficult to pay back. If you default on the loan you stand to lose your home, so it’s important to be sure you’ll have the means to pay back the funds according to the agreed-upon terms.

On the positive side, because your home serves as collateral, you’ll most likely be able to get a lower interest rate than an unsecured loan – which can mean big savings in interest payments over time. Interest rates are usually fixed for this type of loan, which makes it possible to lock in a lower rate that won’t change with market fluctuations. You may even be able to count the interest as a tax deduction.

Home equity installment loans are perfect for consumers who are interested in one-time loans and are confident of their ability to repay it. They’re also a good fit for those who like the security of a fixed interest rate.

ConsumerFinanceReport.com features an extensive library of articles providing information, commentary, and guidance on a variety of personal finance issues and topics, such as the article home equity loans. Sections covering mortgage related topics educate consumers on loan modification and tips on refinancing.

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What is a Home Equity Loan?

It is a method of financing whereby a homeowner borrows an amount based on the difference between the market value of the home and the amount still owing on the original mortgage – if any. An equity loan on your home may also be known as a second mortgage or borrowing against the property. The loan may be received as cash, payment of bills, line of credit or as collateral for other property.

Where Can I Find the Latest Information?

In the past, home loans were often issued by banks, savings and loan institutions or other mortgage lenders at the local level. Today, there are many equity loans available through the Internet. These loans may be associated with private or large commercial lenders. They may specialize in second mortgages or be available from a regular mortgage lender.

What Factors Affect the Interest Rate?

Many factors affect the rate of interest that will be charged on a home equity loan. The creditworthiness of the homeowner is just one example. The amount of collateral accrued in the home is also taken into consideration. There is often a cap placed on the loan-to-value ratio of the second mortgage. The term of the loan and the size of the loan will also affect the rate of interest charged.

Fixed Rate or Variable Rate?

A fixed interest rate is one that is determined at the beginning of the loan period and remains the same throughout the loan. It tends to be somewhat higher than a variable interest rate. A variable interest rate is one that can be adjusted up or down during the repayment period. The adjustment is usually based on an outside factor such as the prime lending rate.

Uses for a Home Equity Loan

THis form of finance is usually an option considered when the homeowner has upcoming major expenses and needs cash or credit. The loan may be taken to pay for major improvements on the home that will increase its value. It is sometimes used to pay for college expenses or for catastrophic medical bills. Another common use for the loan is to pay off credit card bills with a higher interest rate.

Loan Term

The loan term is the length of time allowed for repayment of the loan. It may be as long as 25 or 30 years in some instances, or a short as two or three years. The lender is usually willing to structure a loan so that you can afford the payments within your budget.

Before choosing additional loans or credit of any type, you should make sure that it is the best fit for your long-term financial needs. By seeking the best home equity loan interest rate, you will pay less money overall. You will be on a better financial footing so that you can pay the loan off more speedily.

Most people don’t realise that fixed home equity loan can save them money as well as freeing off some cash. If you can obtain a home equity loan refinancing you can often save a small fortune in interest charges over the period of the loan. Visit our website to get free information about the pros and cons of home equity loans.

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The report shows that the small business sector has grown during the recession and experienced fewer job losses that large employers. Where companies with more than 100 employees cut 10% of their staff, small businesses saw a comparatively minor 1% jump in unemployment.

There are plenty of reasons for their success. For one, small businesses depend less on export markets and more on local consumers. If consumers feel confident enough to spend, small businesses benefit. Compared to the U.S., Canadian consumer confidence was very high throughout the economic downturn. A robust housing market, aided by historically low mortgage rates, was certainly a factor in Canadians’ positive outlook.

And even though unemployment in Canada jumped by 2.5% between August 2008 and 2009, people were out of work for an average of only 15 weeks -one week longer than the 14-week average experienced prior to the recession. Looking at the U.S., the duration jumped to a very high 25 weeks, compared to 18 weeks before the downturn occurred.

Why the stark difference here? The assumption by CIBC report author Benjamin Tal is that the “labour market is more dynamic” in Canada. In other words, people who lost their jobs turned to self-employment to make ends meet. Between 2008 and 2009, the number of self-employed in Canada rose by nearly 93,000.

Using Your Home Equity to Start a Business

When it comes to launching a small business, there are lots of associated costs. Depending on the type of business you plan to run, costs can run pretty high. If you intend to enter the retail market, you need to cover a lease, computers, inventory, and staff. Even small home-based businesses require an investment in some basic equipment: a computer, printer, desk, and office supplies. Then there are associated marketing costs. You may need to hire a marketing firm, take some courses, buy some books, purchase a Website domain, and create a website.

And that is just the beginning. Even with the best business plan, you will run into additional costs somewhere along the line.

A home equity line of credit (HELOC) is often the perfect solution for a small business. More affordable than standard loans, a HELOC also gives the added flexibility of quick and easy access to funds.

Even if you have an established business, you can use a HELOC to make an investment in your company to expand, try new markets or products, or add staff. With interest rates as low as they are now, home equity products are probably one of the most affordable ways to invest in your business.

If you decide a HELOC is the way to go, speak with a certified mortgage professional about negotiating the best terms for your specific needs.

Canadian Mortgages Inc is a mortgage broker in Toronto providing home equity loans, second mortgages and more.

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