Owning a Home
The Pluses and Minuses of Home Equity Loans
Despite its rather neutral and upbeat name, a home equity loan is a mortgage - generally a second mortgage in the form of a loan or a line of credit.
It is backed by the value of your house, minus whatever you still might owe on it. So, if your house is worth $200,000 and you still owe $125,000 on your first mortgage, you can be said to have $75,000 in equity.
An equity loan or line of credit can be helpful, but it should be treated with at least as much care and attention as you devoted to your first mortgage.
Here are some things to keep in mind:
- You can get access to relatively large amounts of cash - sometimes as much as 85 percent of the appraised value of your home minus what you still owe on your first mortgage - at low interest rates.
- You are surrendering a portion of your stake in your most valuable asset - your home. That might be justifiable to pay for a critical medical procedure or vital home repair, but don't use this to support an out-of-control spending habit. If you don't get your spending under control, you may forfeit your house.
- You may have to pay the same fees you paid when you applied for your mortgage - an application fee, title search, appraisal, attorney's fees and points. But some lenders offer deals that eliminate many of these fees.
- Though this carries the same risks as a first mortgage, the payoff times tend to be much shorter - generally 10 or 15 years.
- This is a competitive business landscape, so shop around and compare prices before choosing a lender.
Here are some red lights that should alert you to trouble:
- The lender asks you to sign blank documents to be filled in later. Never sign a blank form or document, and, if you don't understand the terms, don't sign.
- The lender offers to pay contractors directly for repairs to your home. Lenders are prohibited from making direct payments for home repairs, so this is a sign that something's wrong.
- The lender requires a balloon payment on loans that mature in less than 10 years.
- The lender offers to handle the paperwork and "originate" the loan at your home without a prearranged appointment- also forbidden under Florida law.
- Don't let anyone trick you out of your home! Verify that a company or broker is licensed using the Florida Department of Financial Services' toll-free helpline at 1-800-342-2762, or by visiting the agency's Web site at www.fldfs.com
To learn more about protecting yourself against predatory lenders, click this link to the Florida Department of Financial Services: www.myfloridacfo.com/consumers/guides/generalfinancial/docs/predatory_lending_2008.pdf
A primer on home equity loans and various calculators are available here: www.bankrate.com/brm/green/loan/basics1-1a.asp
|
|
|
|
|
|