Home Equity Loan Calculator

If you need a large sum of cash for a serious financial need, you may be considering a home equity loan. A home equity loan can help you obtain the cash you need, however, there are many things to consider before entering into a contract. Understanding these concepts can help you determine if a home equity loan is really the right option for resolving your financial issues.

What is a home equity loan?

A home equity loan allows you to borrow money by placing your home up for collateral. You can borrow up to 75%-80% on the value of your home. By obtaining a home equity loan, you enter a legal contract with a lender stating that you will pay back this amount, plus all interest applied, within specific terms that are set by the lender. Generally, home equity loans carry a 15 year term. While this often makes your home equity loan payments higher than your mortgage payments, you will pay less interest on the home equity loan.

Understanding collateral

Collateral allows you to use an item of substantial value to help you acquire a loan. This item must exceed the amount of the loan. If the loan is not paid for, according to the terms that you and the lender have agreed upon, the lender has the right to take your collateral and sell it.

Your original mortgage payment was a collateral loan. So are car loans. Lenders do not usually loan large amounts of money without some form of collateral. This ensures that they do not lose out on the money they lend to you.

Advantages and disadvantages to home equity loans

Home equity loans do allow you to obtain a loan, particularly when the amount of money you need is great. However, failure to repay the money will result in the loss of your home. You should carefully consider whether or not you have the funds to pay back the loan before committing to the terms.

The money loaned to you on your home equity loan is generally tax deductible. Additionally, home equity loans usually have a lower interest rate than unsecured loans. However, like most situations that involve money, unethical and illegal practices do occur. It is important to safe guard yourself against potential scams.

Home equity loan fees

Finding a lender that does not require you to pay fees on your home equity loan may be possible. However, the chance is rare. If you do find a lender that claims you don’t have to pay any upfront costs, you should check to see if they roll these costs into the loan. Expect to pay fees similar to the fees you paid during your mortgage. Appraisals are almost always required. You are responsible for the cost of the appraisal.

Does your home have to qualify?

All homes must qualify for a home equity loan. These qualifications will relate to the results of the appraisal as well as the type of structure your home is considered to be. Homes that are zoned as residential properties usually qualify, as long as the appraisal results are satisfactory. Mobile homes, however, do not usually qualify for home equity loans. Additionally, unique home structures like log houses may not qualify for a home equity loan.

What can you do with your home equity loan?

There are no stipulations placed on how you can use your home equity loan. You may use it on anything you see fit. The most frugal approach would be to use the funds to repair your home. This will increase the value of your home. However, borrowers use their loans for other purposes like purchasing a vehicle, funding a child’s college tuition, or paying off debt.

Can a home equity loan be refinanced?

Refinancing a home equity loan can sometimes be more difficult than simply refinancing your mortgage. Lenders often frown upon refinancing the large sum of money when you have a mortgage and a home equity loan. However, it is possible to accomplish refinancing, if it is a favorable decision.

While refinancing can save you money in some situations, it is not always the best answer. By refinancing, you are, essentially, restarting the loan. This can cause you to pay more interest over the life of the loan. Carefully consider whether or not refinancing your home equity loan is a good financial decision.

Protected against discrimination

While applying for a home equity loan, you are protected against discrimination under the Fair Housing Act and the Equal Opportunity Credit Act. This means that you cannot be denied a loan based upon your age, marital status, sex, race, color, national origin, religion, or familial status. There are, however, other reasons like credit, insufficient value in your home, or failure to provide ability to repay that can affect your ability to acquire a home equity loan.

While a home equity loan may not be right for everyone, it has provided many families and individuals a means to manage a serious financial burden. Understanding how they work can help you decide if it is a financial decision that is right for you and your family.

Finding the best home equity loan for your needs could save you thousands of dollars. It can also help you avoid terms that are unfavorable for your financial situation. Finding the best home equity loan starts with understanding the process.

Home Equity Loans Explained

Home equity loans allow you to apply for and obtain a loan by offering your home up as collateral. These types of loans can provide you with a large sum of cash. However, because your home is used as collateral, you do place yourself at risk for losing your home if you do not meet the terms of the agreement. Before considering a home loan, you may want to be sure that you have no other viable options.

Before You Start Searching

Before you can start searching for a home equity loan, there are a few things that you will need to do to prepare yourself. First, you should take the time to familiarize yourself with the different loan types as well as their pros and cons. Try to understand the basic meaning of common loan terminology so that you are adequately prepared to know which fees are reasonable.

You will also want to spend a fair amount of time considering the home equity loan itself. Consider what you need the loan for so that you can adequately determine just how much you need to borrow. Once you know how much you plan to borrow, start outlining different aspects of the loan, including how much you can afford to pay monthly, how long you want the repayment period to be, and what type of interest rate you are looking for. You can use a mortgage calculator to help you determine which repayment options will best fit your monthly budget.

Once you are clear on your terms, know which terms you are willing to be flexible with. Which terms will you stand firm on? This will leave you room for compromise while still allowing to keep your financial plan as close to the original as possible. Always remember, no matter what a lender tells you, you are the best person to determine what you can handle in term of your finances. Do not allow them to pressure you in to loan terms that make you uncomfortable.

The Importance of Comparison Shopping

As with most financial decisions, whether it is buying a pair of shoes or finding a home equity loan, shopping around can save you money. While a pair of shoes might only save you a few dollars, shopping around for the right home equity loan could, potentially, save you thousands.

While shopping around for your home equity loan, speak with different types of lending agencies, including lending brokers, credit unions, and banks. The more lenders you talk to, the better chance you have at obtaining the best loan terms.

Because your loan is based partly on your credit, you will want to be sure that you avoid multiple inquiries on your credit. This will decrease your credit rating. Ask lenders to wait to officially pull your credit until the loan process actually starts. You may even consider obtaining one credit report on your own accord and taking it with you to each lender. While they will need to pull a report on their own once the process starts, this can give them a good idea of what your credit looks like ahead of time. This will ensure that they are able to offer you a more reliable rate, based on your credit rating.

Working With Brokers

You will not always know immediately that you are working with a broker. Some lending agencies use brokers within their business that go by different titles. You should always ask if someone you are working with a broker. This information can change the rates and specifics of your loan.

While a broker may be able to help you find a better rate, brokers often have additional fees that you are responsible for. The most common fees associated with brokers are called points. Points are tied directly in with your interest rates. You may be able to negotiate these points. You must, however be aware of their presence to negotiate.

Negotiating With Your Lender

Don’t be afraid to make lenders compete for your business. Take your best rates and schedule fees with you to each lender appointment. See if a lender can beat your prime deal. This negotiation process can shave thousands off of your loan fees.

You should always ask a lender to write down schedule that details all of their fees as well as the amount. Having this information in writing will ensure that, while you are negotiating specific fees, that the lender doesn’t increase the price of one fee while reducing the other. Doing so locks you in to the rate they have quoted, protecting you from interest rates, if they should happen to rise before the loan is closed.

Watch Out For Deal Breakers

Deal breakers are considered loan terms that are highly unfavorable. These can cost you thousands of extra dollars. Some of the most common deal breakers include balloon fees, large pre-payment penalties, account maintenance fees, and check writing fees. If you experience a lender that applies any of these fees, avoid them at all costs.

If you are considering a home equity loan, you will have to find a lender to fund it. Not all lenders are created equal. Recognizing this fact can help you to find the best rate for your home equity loan. Failing to do so, however, can result in unfavorable loan terms and extra fees.

Weighing your decision

Your home is more than just a building with walls and windows. It is an investment. By taking out a home equity loan, you are giving up part of your ownership in your home to fund your financial need. Whether or not you realize it, taking out a home equity loan will be one of the biggest financial decisions you will ever make, next to your initial home loan.

Why is finding the right terms so important?

Your home is being placed up for collateral for the funds you plan to borrow. Failure to meet repayment terms can, ultimately, result in the loss of your home. This is commonly known as foreclosure. Finding terms that fit your budget and your needs can help you to better plan for the payments and help protect you against foreclosure.

Broker, bank, or credit union?

There are a number of places that you can go to obtain your home equity loan, each with advantages and disadvantages. Brokers, while they charge a fee that is reflected in your interest, do work with a number of lenders. Although they are not required to find you the best rate, they can sometimes offer you more favorable terms because of their number of resources.

Banks do not charge you broker fees, as long as the bank does not use a broker for home equity loans. Be sure to ask this question when speaking with the loan officer. Credit unions tend to offer highly favorable terms because they are not motivated by financial gain. However, you have to be able to join the credit union in order to obtain a loan through them.

When it comes down to it, you should go for the lender that offers you the most favorable rates. To determine which lender has the best rates, you will have to do comparison shopping.

Always comparison shop

Never, for any reason, take the first loan that is offered to you. Always shop around. Visit different lenders with different institutions. Visit different types of lenders. Not only will this help you find the best rate, it will also protect you from potentially dishonest lenders.

You should always get a Good Faith Estimate. This prevents you from being subject to increased fees. It also provides you with concrete material when comparing loan terms. Never be afraid to take in a Good Faith estimate to another lender to see if they can beat it. Make your lender work for your business.

Spotting dishonest lenders

You may not encounter a lender that uses illegal practices. However, you are likely to encounter at least one that is dishonest. Learn how to spot them quickly and avoid them completely.

The best way to spot a dishonest lender is by obtaining a large number of loan quotes. This will familiarize you with which fees are normal. You will also become aware of a normal range for these fees. If a lender charges you several times the amount on certain fees than all of your other lenders, they are most likely inflating those fees to receive a personal profit.

Dishonest lenders can also be extremely pushy and may try to pressure you in to a loan that you don’t feel comfortable with. Never make a decision on the spot. Request all information, in writing, and take it home to compare with your other quotes. If a lender refuses to give you rates and fees in writing, cut all contact with them.

Look for a lender that makes you feel comfortable

Don’t mistake a lender that makes you feel comfortable with a lender that charms you. Charm and deception can often go hand in hand. Recognizing the difference can help you avoid a deceptive lender.

A deceptive lender will often reflect questions and change the subject. A lender that makes you comfortable will make sure that your questions are answered. If they do not know the answer to your question, they will find out from someone who does. A lender that is trying to charm you will avoid talking about certain fees. A lender that makes you feel comfortable will clearly outline all fees for you. They will speak with you openly about all of the fees and the terms of the loan. A lender that is trying to charm you will not address your needs. They may often ignore your needs altogether. A lender that makes you feel comfortable will address your needs and try to meet them to the best of their abilities. A deceptive lender will make changes to your financial documents to try to qualify you for a loan. A lawyer that makes you comfortable will talk with you about your income and credit and to their best to obtain the loan. However, they will not guarantee an approval.