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Home Equity Loans St. Louis
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Home equity loans can put you well into the black, financially speaking, provided you don't use the lending strategy as a stepping stone to even more debt.
A home equity loan allows homeowners to access the equity in their primary residence without having to sell the property. Equity is the difference between what a home is worth and what is owed against it. Traditionally, home equity loans were called second and third mortgages.
Equity in a home comes from two sources. Mortgage payments, over a period of time, reduce the amount owed against a property, and real estate appreciation increases the gross value. After several years of making mortgage payments, the equity accrued can be substantial. For example, a home purchased for $250,000 with a zero down payment mortgage and appreciating 5% a year may have $50,000 in equity in as little as five years.
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The above rates are national averages. They are published by a 3rd party and not compiled or guaranteed by Best Mortgage and Loan.
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Banks and finance companies often given favorable rates on home equity loans as real estate is perceived to be a very stable investment. This is especially true when the economy isn't struggling, as real estate has a long history of appreciation. Mortgage lenders also have access to quasi-governmental agencies such as the Federal National Mortgage Agency (Fannie Mae) that reduce lending rates by shifting interest risk away from the lender.
While home equity loans have favorable rates relative to auto loans or credit card debt, the rates are still higher than for a first mortgage. A home equity loan can be turned into a first mortgage through a process known as refinancing.
Home equity money is yours to use as you wish, but most home owners focus on several economic priorities when they cash in on home equity loans. Simply, a Home Equity Loan is just another mortgage on your home. A Home Equity Loan mortgage allows you to handle this mortgage debt in several ways. The Lender may do any of the following:
A) Give you a check book and you draw out the money or the loan proceeds when you need them (a line of credit).
B) Give you the proceeds in a lump sum and you repay the loan in equal monthly installments.
C) A Combination of A & B.
1. Transform many bills into one: Debt consolidation is by far how most home owners use home equity loans. It can also be the riskiest way to use the home equity loans.
If you've racked up bank credit card debt, retail credit debt and other debts, home equity loans can pay them all off leaving you with one monthly bill that's likely smaller than the others combined. It's also a good chance the interest rate will be half what you were paying on just one credit card. The rate on home equity loans is cheaper because, unlike credit cards, the debt is secured by your home. Additional debt-cost savings are available because with the consolidation you'll likely pay off your debt sooner. Along the way you'll get to deduct the interest, up to the legal limits allowed for home equity loans.
Aside from the savings of home equity loans, a single monthly bill can also improve your cash flow, leaving you with more disposable income to save or invest. And over time, the single monthly payment also improves your credit profile, revealing to lenders that you are a less risky borrower who isn't over burdened by debt.
However, the need for home equity loans could indicate a credit habit the home equity fix might only exacerbate. Homeowners should consider how to prevent themselves from scoring more credit before securing home equity loans.
Don't just pay off your old debts, cut up all but one card for emergencies and consider debt counseling to learn how to budget your income.
Be sure to write a letter to your creditors telling them to close your accounts so you can't get at them and your credit report doesn't show you've got unused credit you can still tap.
If there's a difference between what you were paying each month on all your debts and the home equity loan's payment, save it and learn to use cash where possible.
Do not take on additional debt while the home equity loan is still outstanding.
2. Put the home equity money back: Almost as common as debt consolidations are home equity loans used for home improvements. With carefully planned and professionally completed work, homeowners effectively put home equity loans back into the home by adding more square footage, by bringing the home up to current building codes and by upgrading to contemporary home design and features.
Problems here stem not so much from using home equity loans for home improvements, but the decisions you make about the improvements.
The best improvements from home equity loans increase the fair market value of your house. Remodeled rooms, notably kitchens and bathrooms, add the most value. Additions are fine too as long as you don't over improve. Additions should blend in both with your home's existing style and the design of the homes in your neighborhood. Interior painting, carpeting and the like probably won't add much value, but those cosmetic touches will improve the salability of your home.
Keep in mind, however, that lenders aware that your home is on the market may not give you an home equity loan, without additional costs. And if you have an equity loan when you sell your home you have to gross enough to pay off both the first mortgage and any outstanding home equity loans.
3. Invest home equity funds in your kids: Using home equity loans for education is another popular choice, what with the skyrocketing costs of post-secondary education and higher incomes that don't qualify for special grants and government-backed loans.
Home equity loans used to pay for education are investments of sorts too. An educated son or daughter is more likely to be financially independent sooner and building his or her own wealth rather than draining yours.
Unfortunately, college for your kids comes just about that time when you are nearing retirement and may consider home equity loans to offset your reduced income. Don't over look special educational loans, tax writeoffs and scholarships to meet your children's educational needs.
4. Disposable goods and services: No matter what you do with your home equity money you can deduct the interest and that's a compelling reason to use the home equity loans to buy those big-ticket items you've always wanted, a new car, boat, recreational vehicle. Home equity loans are also a godsend if you are hit with big medical bills or some other emergency.
Don't forget, when the car is ready for a trade-in, the recreational vehicle is up on blocks and you are fit and healthy again, you may still have equity loan payments to make. Your home is on the line.
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