What are the pros and cons of a home equity mortgage?
I am thinking of refinancing and the home equity mortgage is very appealing but I do not know enough about it. I can get a great rate and under 1K closing costs total on a 30yr fixed rate. I am looking for pros and cons.
You all misunderstand what I asked. I currently have a 1st mortgage and a Heloc. I am looking into refinancing and combine them together. I found a bank that is offering me what is called an Easy Equity Mortgage. The terms I am being offerered are sounding too good to be true and I am looking for more information. My offer is on a loan of $240000 (1st and Heloc combined). Since my company does business with bank they offer 1/4% off and if I open account it is another 1/4% off. The rate offered with these together on a 30yr fixed is now 5.5% with 0 point and 0 origination. They are quoting me under $1000 closing costs which is the part I can't believe. If you are curious go to www.53.com (5/3rd bank) is the name of the bank. My credit score is over 800 and my DTI is under 20%. No other debt involved.
Thanks
You can get a home equity mortgage loan from almost any banking or mortgage institution. A broker, your local bank, big nationwide banks, credit unions, or investment firms like Etrade and others all sell home equity mortgages.
But which is the best one to use for a home equity mortgage loan?
This is the only time I would say not to use a mortgage broker or a smaller mortgage company and here’s why. A home equity second mortgage is not a broker’s forte. They want to make a certain amount on a loan and they get paid as a percentage of the loan amount.
Since a home equity mortgage loan is usually much smaller than a first mortgage, they have to charge much more than other big companies to make it worth their while. And with the credit crunch in full swing, a broker doesn’t have access anymore to the same home equity mortgage products that the big banks do.
You could still use a broker if you’re getting a home equity mortgage at the same time as a first mortgage. The broker makes the bulk of their commission off the first mortgage and it is just easier to get both loans at the same place.
Big banks are the only way to go for a home equity mortgage loan.
If you need a home equity mortgage loan then you have to look to the bigger banking institutions. Compare a home equity mortgage loan with companies like Countrywide, Citibank, Wells Fargo, etc. Then, call the bank where you have your checking accounts. If you have investment accounts, call them and see if they offer a home equity second mortgage as a product.
How do you compare a home equity mortgage loan?
Obviously, the rate and costs are important but you have to also uncover the fees for a home equity second mortgage.
The fees to watch out for are:
1. Prepayment fees. Ask if there is a fee to pay off and/or close your home equity mortgage before a certain time. These are also called cancellation fees.
2. Usage fees. Some companies charge when you don’t use your line of credit for a home equity mortgage.
3. Annual fees. Just like a credit card there may be an annual fee.
The home equity mortgage loan is sometimes just the loss leader to get in your pockets with something else. They may hold a super low rate over your head for a home equity mortgage loan to get you to transfer all your checking and savings accounts over to them.
One place you may not think of is a credit union. Check them out too. They may have better options for you not only for a home equity mortgage loan but for all your banking needs as well.
Don’t just go with the first company you contact for a home equity second mortgage. Compare many different ones to find out which home equity mortgage loan really fits your situation and keeps more money in your pocket.
A HELOC mortgage is a line of credit securitized by the equity in your house and sits usually in second lien position. A Fixed Home Equity Loan is not a “line of creditâ€, but a standard fixed term, fixed rate, fixed payment loan that also sits in second lien position.
A HELOC mortgage rate is always adjustable and that is the first dangerous difference from the fixed home equity loan. The HELOC rate adjusts usually by combining the Prime rate plus a margin. The HELOC mortgage is usually quoted as “Prime plus 1″ meaning your HELOC rate will adjust and stay at 1% above the Prime Rate forever.
The second dangerous difference of a HELOC mortgage is that they are amortized interest only or worse, like a credit card. Either way, you will keep paying the monthly amount and pay down no principal.
The third danger of a HELOC loan which differs from the fixed home equity loan is the standard presence of a pre-payment penalty. Most HELOC loans contain a clause that states you owe them a fee or penalty for paying off the loan before a set time has elapsed. It can be as long as 5 years, but more commonly the duration is 3 years. The penalty fee can be as little as a $100, or as much as 3% of the initial HELOC mortgage amount.
Ouch!
The fourth danger to watch out for is the non-usage fee. This is a fee that gets triggered once you’ve paid down the HELOC loan to zero, but don’t close the line. The HELOC loan stays open but you haven’t borrowed anything, therefore, the bank is not making any interest, so they hit you with a non-usage fee. Once again, it could be only a few hundred bucks but that’s a hefty sum when it could easily be avoided. And of course, there are no such fees possible on a fixed home equity loan since it’s not a line of credit.
The last danger is the no caps element of the HELOC mortgage. A HELOC rate adjusts usually without rate caps so your HELOC mortgage payment could adjust upward with no end in sight. This is one of the most dangerous differences in that the HELOC rate can increase over time but the fixed home equity loan rate by definition can’t.
One way a HELOC mortgage becomes more appropriate is when you know you’ll be paying it off quickly. Also for small business owners a HELOC loan is usually a cheaper way to obtain business capital without the hassle.
But for most of you (not the business owners) a fixed rate rate home equity loan is best .
You can get a home equity mortgage loan from almost any banking or mortgage institution. A broker, your local bank, big nationwide banks, credit unions, or investment firms like Etrade and others all sell home equity mortgages.
But which is the best one to use for a home equity mortgage loan?
This is the only time I would say not to use a mortgage broker or a smaller mortgage company and here’s why. A home equity second mortgage is not a broker’s forte. They want to make a certain amount on a loan and they get paid as a percentage of the loan amount.
Since a home equity mortgage loan is usually much smaller than a first mortgage, they have to charge much more than other big companies to make it worth their while. And with the credit crunch in full swing, a broker doesn’t have access anymore to the same home equity mortgage products that the big banks do.
You could still use a broker if you’re getting a home equity mortgage at the same time as a first mortgage. The broker makes the bulk of their commission off the first mortgage and it is just easier to get both loans at the same place.
Big banks are the only way to go for a home equity mortgage loan.
If you need a home equity mortgage loan then you have to look to the bigger banking institutions. Compare a home equity mortgage loan with companies like Countrywide, Citibank, Wells Fargo, etc. Then, call the bank where you have your checking accounts. If you have investment accounts, call them and see if they offer a home equity second mortgage as a product.
How do you compare a home equity mortgage loan?
Obviously, the rate and costs are important but you have to also uncover the fees for a home equity second mortgage.
The fees to watch out for are:
1. Prepayment fees. Ask if there is a fee to pay off and/or close your home equity mortgage before a certain time. These are also called cancellation fees.
2. Usage fees. Some companies charge when you don’t use your line of credit for a home equity mortgage.
3. Annual fees. Just like a credit card there may be an annual fee.
The home equity mortgage loan is sometimes just the loss leader to get in your pockets with something else. They may hold a super low rate over your head for a home equity mortgage loan to get you to transfer all your checking and savings accounts over to them.
One place you may not think of is a credit union. Check them out too. They may have better options for you not only for a home equity mortgage loan but for all your banking needs as well.
Don’t just go with the first company you contact for a home equity second mortgage. Compare many different ones to find out which home equity mortgage loan really fits your situation and keeps more money in your pocket.
A HELOC mortgage is a line of credit securitized by the equity in your house and sits usually in second lien position. A Fixed Home Equity Loan is not a “line of creditâ€, but a standard fixed term, fixed rate, fixed payment loan that also sits in second lien position.
A HELOC mortgage rate is always adjustable and that is the first dangerous difference from the fixed home equity loan. The HELOC rate adjusts usually by combining the Prime rate plus a margin. The HELOC mortgage is usually quoted as “Prime plus 1″ meaning your HELOC rate will adjust and stay at 1% above the Prime Rate forever.
The second dangerous difference of a HELOC mortgage is that they are amortized interest only or worse, like a credit card. Either way, you will keep paying the monthly amount and pay down no principal.
The third danger of a HELOC loan which differs from the fixed home equity loan is the standard presence of a pre-payment penalty. Most HELOC loans contain a clause that states you owe them a fee or penalty for paying off the loan before a set time has elapsed. It can be as long as 5 years, but more commonly the duration is 3 years. The penalty fee can be as little as a $100, or as much as 3% of the initial HELOC mortgage amount.
Ouch!
The fourth danger to watch out for is the non-usage fee. This is a fee that gets triggered once you’ve paid down the HELOC loan to zero, but don’t close the line. The HELOC loan stays open but you haven’t borrowed anything, therefore, the bank is not making any interest, so they hit you with a non-usage fee. Once again, it could be only a few hundred bucks but that’s a hefty sum when it could easily be avoided. And of course, there are no such fees possible on a fixed home equity loan since it’s not a line of credit.
The last danger is the no caps element of the HELOC mortgage. A HELOC rate adjusts usually without rate caps so your HELOC mortgage payment could adjust upward with no end in sight. This is one of the most dangerous differences in that the HELOC rate can increase over time but the fixed home equity loan rate by definition can’t.
One way a HELOC mortgage becomes more appropriate is when you know you’ll be paying it off quickly. Also for small business owners a HELOC loan is usually a cheaper way to obtain business capital without the hassle.
But for most of you (not the business owners) a fixed rate rate home equity loan is best .
References :
The pros is you'll walk out with a nice check in your hand and lower your payments hopefully. As long as your getting atleast 2% or greater rate on the refinancing it's worth it.
The cons are that if you get your hands on this money you might blow the money.
I would take the money and invest in some investment properties that would generate possitive cashflow and a passive/residual income for future retirement.
Good Luck
References :
If you apply for an equity loan, you have two options: The Fixed and/or you choose the Adjustible (Home Equity line of credit or HELOC). Th good thing on a HELOC is you dont get charged on the interest rate until you use the funds. Same principle as in a credit card. Say you apply for a 50,000usd HELOC. You wont get charged anything until you start using it. If you use $5,000, you get charged on the 5k only. Your payment adjusts depending on the amount you take. You can use the line by way of a special check or a heloc card. HELOCs have a draw period, during which the borrower can use the line, and a repayment period during which it must be repaid. Draw periods are usually 5 to 10 years, during which the borrower is only required to pay interest. Repayment periods are usually 10 to 20 years, during which the borrower must make payments to principal equal to the balance at the end of the draw period divided by the number of months in the repayment period. Some HELOCs, however, require that the entire balance be repaid at the end of the draw period, so the borrower must refinance at that point.HELOCs are convenient for funding intermittent needs, such as paying off credit cards, making home improvements, or paying college tuition. You draw and pay interest on only what you need.
Fixed Second Mortgage is fixed, plain and simple and you get charged right away on the amount you borrowed. If you borrow 50,000usd, if will be amortized for the entire term of the loan, say, 25 yrs and the interest charges begin the day it is available to you.
References :
for more info: go to http://www.mortgageprofessor.com