Understanding the Difference Between Home Equity Loans and Home Equity Line of Credit

Understanding the Difference Between Home Equity Loans and Home Equity Line of Credit
By [http://EzineArticles.com/expert/Alfred_Ardis/663300]Alfred Ardis

Property owners often wonder how they can use the value of their house to access low-interest financing. A loan or a home equity line of credit are two options available to you. To figure out which will better suit your needs, see some of the differences below.

Home Equity Loan (HEL)

A loan tapping into the value of your house is a good way to borrow money. This option allows you to get a fixed amount and receive it in one lump sum. The amount you receive is based on your home's value, payment terms, verifiable income, and credit history. You can get it with a fixed rate, fixed term, and even a fixed monthly installment. In addition, interest payments are 100 percent tax deductible.

Home Equity Line of Credit (HELOC)

With a home equity line of credit, you do not get your money all at once. Instead, you open a revolving credit, which allows you to receive money as you need. Your house is used as collateral to open the credit account. Companies approve this type of account based on the appraised value of the property and subtracting the current balance of the existing mortgage. Some consider income, debt ratio, and credit history.

Unlike a HEL, on a HELOC you withdraw the funds as needed over a period of time, usually five to ten years. Plans vary and you may have special checks or a card to use in order to access your funds. Depending on your account, you may have to borrow no less than a set amount each time you access it. You may also have to maintain a minimum balance outstanding. Some plans require a specific initial withdraw as well.

After the "draw period" ends, some HELOC providers will allow you to renew the terms of the account. Not all lenders allow you to renew the plan. In addition, once the "draw period" has ended, you enter the "repayment period." Your lender may require you to pay back the entire amount at this time. Others allow you to make installments.

How Do They Differ

While both a HEL and an HELOC allow you to tap into the value of your property to gain access to financing, there are two major differences. That is the interest rates and the repayment terms.

With a HEL, you get a fixed interest rate. This means you know what your interest rate is from month to month. This also makes your payments fixed, making it easy to budget each month.

However, a home equity line of credit usually has an adjustable rate. This means that the monthly interest payment can shift based on the index. Lenders traditionally add a margin of a few percentage points to the prime rate. You should ask the lender what index is used, what is the margin charged, how frequently does the rate adjust, and what the cap and floor on the rate is.

Since the interest is adjustable, monthly installments fluctuate. In addition, during the draw period you could be responsible for repaying the monthly interest only, not paying on the principle until after the repayment period begins.

When considering home equity line, residents visit FirstBank. Learn more at [http://firstbankreversemortgage.com/]http://firstbankreversemortgage.com/.

Article Source: [http://EzineArticles.com/?Understanding-the-Difference-Between-Home-Equity-Loans-and-Home-Equity-Line-of-Credit&id=9332454] Understanding the Difference Between Home Equity Loans and Home Equity Line of Credit

Helpful Reverse Mortgage Information for Potential Borrowers

Helpful Reverse Mortgage Information for Potential Borrowers
By [http://EzineArticles.com/expert/Alfred_Ardis/663300]Alfred Ardis

As people live in their homes for many years, the thought of utilizing the equity is often a consideration. This extra money is often used for major expenses, such as house renovations, education costs, or to pay off debt. A reverse home mortgage is an option for those who have owned a house for many years. There is quite a bit to know about the process, so the following is pertinent reverse mortgage information that may be helpful.

What Are Reverse Mortgages?

This payment arrangement is a specialized loan that allows homeowners to change a portion of their equity into a liquid asset. This equity that builds up over years of making payments on a loan can be paid out to the owner. Many people confuse this with a standard home equity loan. There is a significant difference, however. With this type of arrangement, borrowers are not required to repay the money until the borrowers are no longer living in the house as their primary residence.

What Is the Difference Between a Home Equity Loan

In addition to the above, there are some additional differences between these two arrangements. With a standard equity borrower, the homeowner must make regular monthly payments on both the principal and the interest. A reverse mortgage is different in that it pays the homeowner. There are no payments to be made. The owner, however, will be required to pay all utilities, insurance premiums, and real estate taxes.

What Type of Loans Are Eligible?

The house must be a single-family dwelling or a unit with at least one unit occupied by the borrower to be eligible for this type of equity loan. Condominiums and any manufactured dwellings that meet FHA standards are also eligible. All reverse mortgage information and requirements must be followed in order to qualify.

Will the House Be Inherited?

One primary piece of information people have questions about is whether or not the house can be inherited after taking out a reverse mortgage. Once the house is sold or is no longer being used as a primary residence, the money paid out, the finance charges, and the interest must be repaid. Any additional money will belong to the estate and can be transferred to heirs. There will be no debt passed into the estate.

Can the Arrangement Be Cancelled?

According to federal law, the owner has three calendar days to change their mind and cancel out the loan. This process, called a three-day right of rescission, will be included in the reverse mortgage information provided by the lender. Always reiterate the need for this information and have it thoroughly explained. Lenders will often differ on how they approach this process. Make sure to have all contact information for the person or people who will be handling the cancellation as well as a copy of the lender's policy.

This reverse mortgage information is just the tip of the iceberg. It is crucial to discuss the process with a reputable lender to ensure there are no questions before moving forward.

When collecting reverse mortgage information, homeowners visit Reverse Mortgage Northwest. Learn more at [http://www.reversenorthwest.com/rm-basics]http://www.reversenorthwest.com/rm-basics.

Article Source: [http://EzineArticles.com/?Helpful-Reverse-Mortgage-Information-for-Potential-Borrowers&id=9332301] Helpful Reverse Mortgage Information for Potential Borrowers

Divorce and Eliminating a Joint Mortgage

Divorce and Eliminating a Joint Mortgage
By [http://EzineArticles.com/expert/Michael_Zuren_PhD./1966583]Michael Zuren PhD.

If you are going through the process of divorce and previously signed for a joint mortgage with your spouse, this article will give you the information needed to remove your liability on the joint mortgage and show you how to protect your credit. Even if your spouse is legally assigned ownership of the martial house, if they fail to make the mortgage payments on time, your credit will be negatively affected and it may prevent you from obtaining a mortgage loan in the future. Also, the division of assets and liabilities in the separation agreement will likely impact your income and debt ratio, thereby affecting your ability to qualify for mortgage financing.

If you are going through a divorce, there are two main options to eliminate your liability on a joint mortgage. They include: selling the property and paying off the mortgage or obtaining court approval in the separation agreement for the assignment of the mortgage to one of the spouses. There are potential pitfalls with this option, because assigning the mortgage and ownership of the property to one of the spouses could lead to possible credit issues in the future for the other spouse. The spouse assigned ownership of the house and responsibility for the mortgage will likely be required to refinance the mortgage within a set period of time, thereby paying off the joint mortgage and establishing a new mortgage just in their name. If late payments occur prior to the refinance of the house, the other spouse's credit will be affected. In addition, the other spouse will be required to sign a quit claim deed, thereby giving their ownership in the property to the spouse keeping the property. The quit claim deed does not remove liability, just ownership in the property.

The separation agreement and divorce decree may also impact your ability to obtain a new mortgage. Mortgage lenders will require and review your separation agreement and divorce decree to verify which party is financially responsible for marital debts. These may include: credit cards, installment loans, auto loans, and student loans. Your mortgage lender should omit the monthly payment(s) on debts that were assigned to the other spouse, but any derogatory credit will affect your credit scores. They will also account for the division of assets in the divorce decree and separation agreement. These include: bank and retirement accounts, real property (marital house, rental property, and vacant land), and automobiles and motorcycles. Either party to the divorce can be assigned debt obligations or granted additional income, such as: spousal support or child support (these are usually disclosed in the separation agreement).

Depending on the mortgage type used to finance the marital house, you may also have the option of one spouse assuming the mortgage. FHA mortgages allow one party to assume the mortgage, thereby releasing the liability of the other spouse, unfortunately conventional financing usually does not allow for assumptions. You should contact your mortgage company regarding this option.

Prior to signing your separation agreement or divorce decree it is important to understanding the ramification of court assignment of the marital house and mortgage. Quit claiming ownership of the marital dwelling to one spouse prior to an assumption or refinance of the mortgage into the other spouse's name may lead to severe credit issues for both parties. Take the time and thoroughly discuss your concerns with your attorney, so they can find the best solution to minimize possible negative ramifications in the future.

Article Source: [http://EzineArticles.com/?Divorce-and-Eliminating-a-Joint-Mortgage&id=9336438] Divorce and Eliminating a Joint Mortgage