Home Equity Debt
When should I consider tapping into a "home equity line"?
Be very careful and cautious about tapping into your home equity line because in fact this is the roof over your head. One perfect example of a time you might want to tap into your home equity line is if you want to improve the value of the property. You want to do a big remodeling project. So, you're really actually improving the value of the property. That would be a good time for taking out a home equity loan. Also, suppose you need the money in an emergency. That's a really good time to think about tapping your home equity loan. You should not tap your home equity for any kind of asset that's going to depreciate. That's definitely something you don't want to do. Money that you're going to spend immediately. Sometimes you don't even want to tap it to consolidate your credit card debt for example because then your house is on the line to pay off your credit card debt. It would really be better if you could find a different way of paying off that debt.
How much should I borrow on a home equity line?
You're probably going to be limited, as far as how much you can borrow on a home equity line, by how much a lender will lend you. There are standards. They don't like to lend more than, say, seventy-five to eighty percent of the value of your home; and that would include the first mortgage. So if you still have outstanding mortgage debt, that amount of money would go in there as well. If there's any wiggle room between what you owe on your first mortgage and seventy-five to eighty percent of the value of your house, then that's the amount you could borrow as home equity. But again, your house is on the line if you're borrowing this money, so you don't want to borrow frivolously. You don't want to borrow any more money than you feel comfortable with.
How can I keep my home equity borrowing in check?
Don't go overboard on your home equity borrowing. If you're going to borrow against your home equity, know what the goal is, have a specific purpose in mind, and also have a payment plan in mind so that it doesn't just drag on and never gets paid off. Always pay more than the minimum amount the lender is going to require when home equity borrowing. Say, "OK, I'm going to borrow this amount of money, but I'm going to have it paid off in three years." Or, "I'm going to have it paid off in four years." So eventually that home equity is intact again.
How can I find a great home equity loan?
Well I would start by shopping online. Just go online to the various mortgage sites to see what various brokers are offering. It's kind of comfortable for you because you can do it on your own and you can look at the terms that are available, and one thing you would look at would be the interest rate as quoted by annual percentage rate. That's how you would compare one loan with another or one broker with another; so that's one thing to look for. Sometimes the annual percentage rate would also include certain fees that the brokers are charging, you'd want to know that as well. You also might want to look at things like closing costs, can I get a home equity loan with no closing costs; some lenders will do that for you. If it's a variable rate loan, and it probably will be, what's the margin above the bench mark. If the prime rate is the bench mark, is it prime plus one point, or prime plus two interest rate points? You would also want to know if there is a cap on the loan, if it's going to be able to adjust, is there a cap on the adjustments, an annual cap, or is it a convertible loan. Also could you convert it to a fixed rate loan if interest rates were to rise? So those would be some of the things that you could look at and compare at various mortgage websites.
