max-i-mize [verb] : 1. to increase to the greatest possible amount or degree
2. to represent at the highest possible estimate; magnify
3. to make the greatest or fullest use of.

Your home is your greatest asset, and you can maximize that asset by tapping into its equity with a home equity loan. But you already knew that. It is not enough, however, to maximize your home’s (real estate) equity if you do not maximize your home equity loan. Here are three ways that you can get the most out of your home equity loan and make your home work to its greatest potential for you:

1. Find a loan with the fewest fees. When consumers shop for a home equity loan they focus on mortgage rates and monthly payments. These are important, but in the process they tend to overlook the fees that also come with the loan. Common fees associated with home equity loans include application fees, points, closing costs, and pre-payment penalties. So be sure you do your research and compare all the pricing elements for home equity loans .

2. Make sure the interest is tax deductible. In most cases, the interest that you pay on a home equity loan can be tax-deductible. You should always consult your tax advisor and find out if you can take advantage of an offer like this.

3. Use it to finance something that will increase in value. You can use a home equity loan to finance just about anything. You can pay off credit card debt, or you can buy a car. But the way to really get the most out of it is to pay for something that will increase in value, such as home improvements or college tuition. Most home improvements can add more value to your home. When you use your home’s to fund a project like this, you are, in a way, giving the money back to yourself. Similarly, when you put money into a college education, either for your child or yourself, it is the type of investment that will increase in value and be able to pay itself off in the future.

In order to truly maximize your home’s equity, you need to shop wisely, ask the right questions, and make sure you are getting the best home equity loan available. If you follow these three tips, you will be well on your way to getting the most out of, or maximizing, your home equity loan.

Source: Informa Research Services

In looking for another method of payment, you may think that using a home equity line of credit (HELOC) may be a good alternative route to use to pay for your gifts.  But how appropriate is it to use your HELOC to pay for gifts this holiday season?

A HELOC is typically attached to an interest rate which is linked to the prime lending rate.  The interest rates on are usually the prime rate plus a margin that financial institutions determine.  However, if you have excellent credit, sometimes you can qualify to receive the prime rate.  Use the Internet to shop for the most competitive offers on HELOCs.

Because of this variable rate, frequently the overall benefits of HELOCs are dependent, in part, on the rate environment.  For example, if you had a HELOC between July 2003 and March 2004, your rate would have stayed relatively steady because the prime rate hovered at 4%.  On the other hand, if you had a HELOC from March 2004 to July 2006, your rate would have more than doubled from 4% to 8.25% (Source: Federal Reserve Board).

This potential interest rate fluctuation is one reason HELOCs should be meant for short term spending.  By keeping your HELOCuse short term in nature, you can help avoid paying more than necessary for unexpected prime rate increases.

If you want to use your HELOC to pay for your holidays this season, try using it to pay off your credit cards.  Since HELOCs tend to have lower interest rates than credit cards, by using your HELOC to pay off your credit cards, you should save money by lowering the interest paid overall.  Furthermore, the interest paid on HELOCs may be tax-deductible.  Always check with your tax preparer for full details.

Remember that you don’t have to spend a lot this season to show your friends and family that you care.  You can spend thousands of dollars on gifts, but the best things in life are free.  Spending time together should be a higher priority than spending dollars.  This season, be sure the gifts you give are wrapped in love.

Source: Informa Research Services

$1,019 Billion - The volume of home equity loans has reached $1,010 billion according to the 2006 U.S. Census.  This figure is up from $314 billion in 1995 and $500 billion in 2001.  If you are going to join the masses and tap into your home equity, be sure to secure the best rate by using the Internet to research available rates (Source: Harvard Joint Center for Housing).
 
91% - Ninety-one percent of homeowners consider the equity in their primary home “a useful financial asset” according to a 2006 survey by Harris Interactive for Countrywide (Source: Countrywide Home Loans).  Given the competitive interest rates and potential tax benefits of taking out a home equity loan upon a primary residence, it’s no wonder so many people consider their equity an asset.  To enhance these benefits, you should try to find a home equity loan that has the best rate. 
 
55% - Fifty-five percent of those surveyed stated that they used their home equity loan to repair their home, as stated in the Home Equity Lending Monitor 2006, published by Synergistics Research Collaboration.  Other purposes included debt consolidation (32 percent), vehicle purchase (24 percent), appliances or furnishings (15 percent), and travel (8 percent) (Source: Synergistics Research Corporation).
 
1 in 4 – Approximately 1 in 4 households have first mortgages and home equity loans according to the 2006 U.S. Census.  This figure has increased by 4 percent from 2 years ago (Source: U.S. Census).
 
18% - Eighteen percent of those surveyed considered understanding the opposite sex easier than understanding the home buying process according to a study by Harris Interactive for Countrywide in 2005.  Those surveyed also considered programming a DVR or TiVo (55 percent) and taxes (28 percent) easier than understanding the process of purchasing a home (Source: Countrywide Home Loans; ConsumerAffairs.com).
 
7.83% - The current national average for a $50,000 home equity loan with a 15-year term is 7.83 percent.  The national high rate and low rate are 11.75 percent and 5.63 percent, respectively (Source: Informa Research Services).  Shop online for the best rates.

Source: Informa Research Services

• Repair your roof.  In preparation for the rough winter weather ahead, this may be a good time to get any leaks or damage on your roof repaired.  To help cover the costs, consider using your home equity line of credit to help fund this project.

• Forget the pumpkin patch; plant some vegetables.  It’s no wonder autumn is called harvest season; there are numerous plants and vegetables that thrive in the mild weather autumn offers.  Use this opportunity to replenish your garden and repair any damage left by a hot, dry summer.

• Make your backyard warm and toasty.  The temperature may be dropping almost as quickly as the leaves in your backyard, but that doesn’t mean that all your social gatherings must move inside.  Consider using your home equity line to add an outdoor fireplace to keep you and your loved ones warm when the weather begins to get chilly.  On a smaller scale, a fire pit can help serve the same purpose.

Because the interest paid on home equity lines of credit can be tax-deductible, home equity lines are beneficial and flexible ways for you to access funds to help make your tax season a little less scary this year.  Be sure to inquire with your tax preparer for full details concerning tax-deductibility.  Your home equity line of credit can help you have a fabulous fall season without the frightful bill.

Source: Informa Research Services

The most obvious feature of any loan is the interest rate and rightly so.  A lower interest rate will, indeed, lower the amount added to the cost of financing your vehicle purchase.  Another factor to consider is that the interest paid on a HEL  may be tax-deductible.  (You should check with your tax preparer for full details.)  Moreover, the monthly payments on a HEL [insert link to home equity rate tables] can be lower than those on an auto loan because of HELs typically have longer terms than auto loans.  Instead of paying back your balance over 5 to 7 years, a HEL allows you 10 to 15 years to pay it back.

However, interest is not everything in choosing a loan to use; there are a number of other factors to consider and one such factor is the additional fees that are added to your loan.  These can come in the form of finance charges or closing costs.  In either case, your main objective should be to keep these as low as possible.  In fact, according to a 2004 report, the Consumer Federation of America found that exorbitant “finance markup charges” that were set arbitrarily added at least $1,000 to the cost of auto loans which cost consumers up to a billion dollars a year (Source: National Consumer Law Center).

Like most questions concerning money and finance, there is no single, definitive answer that works for everyone.  Deciding whether to take out an auto loan or a HEL depends on the interest rates and various promotional offers available.  When you finally decide to treat yourself to that new ride, remember to consider the aforementioned factors to help you appropriately weigh your options.  Doing so will have you sliding into those comfy bucket seats, pressing that pedal to the medal, and leaving any financing doubts or regrets in the dust before you know it.

Source: Informa Research Services

Just because you’re paying off an unexpected expense by using a home equity loan or line of credit doesn’t necessarily mean that vacation needs be out of mind.  Many financial institutions partner up with airlines to offer customers a way to earn miles while conveniently using the wealth they’ve built through the equity in their homes to pay off emergency medical expenses or fund a remodeling project.

The rewards offered by these companies range from 1,000 to 5,000 miles upon taking out a home equity loan or line of credit.  While these won’t automatically get you flying first class to your destination of choice on your dream vacation, they will get you at least part way there.

However, before enrolling in a mileage program and applying for a home equity loan or line of credit, check out the lending organizations.  A few thousand miles are nice, but if there is a better deal somewhere else (or even better, somewhere else that offers miles as well), you will regret having not done your research first.

Even if you don’t plan on traveling or if you never end up redeeming them for a ticket or upgrade, you can donate your unused miles earned on your home equity loan or line of credit to the charities with which the airlines have partnerships.  Some of the charities that have partnerships with airlines include the Make-A-Wish Foundation, the American Red Cross, and a number of research organizations and children’s hospitals.  These miles might not be tax-deductible, but they are for a good cause.  Besides, it’s not often that you can contribute to a good cause for free.  As long as the miles earned from your home equity loan are used, whether it is by you or by someone else, these programs seem to be a win-win-win situation.

So put your seat backs and tray tables in the upright and locked positions and get ready to take off with your home equity loan!

Source: Informa Research Services

We’ve all seen those stickers that proudly boast “University of Southern California Mom” or “Harvard Dad.”  What they should really say is “Pay to the Order of USC” or “Sending the Checks to Harvard University.”  If you’ve ever funded the college education of any loved one, then you know the feeling.  While you may not have much of a say as to where your money goes, you can choose where that money comes from, and one option to help fund a college education is a home equity line of credit.

With a home equity line of credit, you have a certain amount of funds available to you (depending on how much equity you have in your home), but you do not have to receive them all at once, which is the case with a home equity loan.  Instead, you can withdraw money whenever you need it and only pay interest on the amount you borrow.  Also, the interest that you pay on a home equity line of credit is usually tax-deductible.  Check with your tax advisor for more details.

If you are still a little uneasy with the thought of using your home equity to pay those hefty college bills, think of it as an investment.  Using home equity to fund home improvement projects to increase a home’s fair market value is not uncommon.  Similarly, funding your child’s education will theoretically help him or her in the job market, just as home improvements are intended to increase your property’s value in the real estate market.

Lawyer and President of Harvard University Derek Bok once said, “If you think education is expensive, try ignorance.”  To ace the financial test that funding a college education may bring about, do your research and study up on the best mortgage rates so you can be assured that you are getting the best home equity line of credit available.

Source: Informa Research Services

Rest assured, the world is not coming to an end because of a possible Federal Reserve discount rate cut.  On Tuesday, the Federal Open Market Committee will meet to discuss whether or not to lower the discount rate.  But despite the seemingly ambient anticipatory anxiety currently erupting from most business and economic media outlets, the sky is not falling.  Rather, this possible decrease is just a small acorn falling off a tree.  So take a deep breath, sit back, and relax.  Here are some pointers to help you make the most out of next week’s decision.

If you feel that deposit rates may drop after the Fed’s decision, these are just a few of the options to consider in deciding where to place your money:

• Consider locking your money into a CD now to take advantage of the rates that are currently available.  If you are considering a term longer than three years, check onrline for the most competitive offers.

• Money market accounts and high-yield savings accounts are also potential deposit accounts you can use to make the most of a possible rate cut.  The rates offered can be extremely competitive with many CD accounts.  You can also find some of these products offering teaser rates that could be locked in for three to six months.

• Another option to consider is laddering your CDs.  By laddering your CDs, or locking your money into CDs of various terms, you will be given the flexibility to take advantage of the rates and promotions available when your CDs mature.  Furthermore, you can lock your money into a longer term CD that typically offers higher rates, and over time, this should even out the high and low interest rate cycles.

By staying informed of all your options as rates change, you can properly gauge what is best for your situation.  For all these options, you should always keep an eye out for the best rates.  Many financial institutions will continue to offer promotional and teaser rates even if rates fall.  Be sure to use tools on the Internet to stay up to speed with the most current rates being offered.  Even if the Fed decides to cut the discount rate, it is very likely that there will still be great rates out there, both online and at your local bank.  Be sure to take advantage of the promotional products (typically paired up with very good rates) banks will continue to offer to attract new customers.

As for loans, the loans that should be affected by the prime rate cut are the variable rates associated with credit cards and home equity lines of credit. Because the rates tied to these loans are typically calculated by adding a certain percentage to the prime rate, with the Fed cut, these interest rates could drop slightly.  Additionally, this might be a good time to open up that home equity line to help pay for unexpected expenses, such as home repairs or improvements.

In general, if the Fed decides to make any drastic changes, the effects would probably be seen over the span of a few months or years, not a few days, allowing the market time to adjust.  Remembering to keep things in perspective and not be impulsive with any financial decisions will ensure that you and your finances will be relatively safe and secure.

Source: Informa Research Services

A home equity loan can be a great resource to homeowners who need some extra money to do a renovation project, pay for college tuition, or even make a large purchase. However, there are three mistakes that you as a homeowner might make that, if avoided, can make the application process run smoothly and give you a better experience:

1. AVOID being unaware of the differences between a Home Equity Loan and a Home Equity Line of Credit. It is important that you understand the differences between the two types of home equity loans so you will know which one is better for your situation. A home equity loan is paid out in one lump sum and it usually has a fixed interest rate and term. A home equity line of credit, on the other hand, can be drawn on whenever you need money, interest is paid only on the amount you borrow, and it usually has a variable interest rate. Ascertaining how you will use the funds, what type of interest rates you would prefer, and how you can afford to repay the loan will force you to research these loans very carefully and will allow you to make the best decision.

2. AVOID getting hit with unexpected fees. Most fees on home equity loans and lines of credit are unavoidable, but it is still important to know about them, so you are not surprised when you are charged with them. Common fees that are charged on a home equity loan include closing costs, points, appraisal fees, escrow fees, flood certification fees, and recording fees. Some financial institutions will also charge customers a prepayment penalty fee if they close out the account before a certain time period – typically within the first three years. Home equity lines of credit carry most of these fees as well, and they also tend to have annual fees attached to them. Being prepared for these fees will allow you to include them in your estimate of how much you can afford to borrow, so that you do not end up owing more than you had expected.

3. AVOID jumping at the offer of a high LTV ratio. The loan to value (LTV) ratio is the ratio of the amount of money you borrow through a home equity loan (or mortgage) to the value of your home. This ratio is considered high when it exceeds 80%. Sometimes, if you have outstanding credit, certain lenders who want your business will offer you a loan for an amount close to or even exceeding the amount of equity you have in your home. The interest and any fees you might be charged can take a high LTV loan above the value of your home, making the excess amount an unsecured loan, like a credit card. The interest on this amount is not tax-deductible, as the interest on home equity loans and lines of credit usually is.  (Check with your tax advisor for more details.) Only borrow what you can afford – do not take more money just because it is offered to you.

Being aware of these mistakes and knowing how to avoid them will certainly get you on the road to becoming a wise home equity loan shopper.

Source: Informa Research Services

One major asset that many homeowners tend to overlook when seeking a way out of a financial hardship is right under their noses… or perhaps more accurately, right over their heads: their home.  Your home is an investment and there’s no reason it can’t yield valuable returns for you. 

A home equity loan (HEL) is a loan that uses the equity built up in your home as collateral and it might be just what you need if your circumstances are right.  However, because home equity options are not created equal, here are a few tips to keep in mind before placing your property on the line:

• Home equity loans are intended for those who have a large, one time expense they need to cover quickly.  Because they are paid out in a single advance, if you have a large project in mind that will take an unspecified amount of time and money, you might consider other options such as a home equity line of credit which allows you continuous access to credit.  However, single expenses, such as paying off credit card debt, could be an effective use of a HEL.

• Speaking of credit card debt, a HEL may be a desirable option for those with less than perfect credit.  Lenders tend to see HELs as rather safe because they hold your home as collateral.  The fact that your property is being used as collateral for a HEL is frequently seen as a huge risk and possible downfall of this type of loan.  To ensure you aren’t forced to face this harsh penalty, be sure to know precisely how you are going to pay the loan back and make all your payments on time.

• HELs are generally offered with lower interest rates, and the interest paid on a HEL may be tax deductible.  Be sure to check with your CPA for complete details.

If a home equity loan sounds like it may be the right fit for you, remember to research potential lenders thoroughly.  Check local credit unions as well as larger banks and finance companies to gain better knowledge of available options before committing to a mortgage company.

Source: Informa Research Services

One part of the American dream is undoubtedly living comfortably in the home of your dreams.  But exactly how attainable is this?  It may be closer than you think.  In fact, it may be only a modest mortgage and a home equity line away.

But before your hopes float too high, be forewarned: unlike the Hollywood version of this story, the real world American Dream does not happen overnight.  And no, you cannot TiVo to the good part of this story.

So, where do you begin?  First, when shopping for your new home, keep your idea of the perfect home close at hand, but keep your realistic idea of your future closer.  Think about what stage of life you want this property to house.  Furthermore, this mentality should apply not only to the aesthetics of properties, but also to the financial side of home shopping.   Remember that while a home that is too small may result in a smaller mortgage, it will also lend itself to lower price appreciation and home equity.  However, trying to buy a home that is too large could potentially end, not in ownership, but rather, in foreclosure.  Finding a happy medium is the key to being a happy homeowner.

Before you start knocking down walls, be sure you know where the funding for your renovations will be coming from.  Home remodeling is an excellent opportunity to use the equity established in your home to fund a project that could potentially increase your home’s value, and therefore, further increase your home equity. However, note that if this is your preferred source of funding, you must wait until you have paid off enough of your mortgage to tap into your equity or until your property has increased in value.

Plan your remodeling not only around improving your daily life, but also around increasing your home’s market value.  There are a number of sources available on the Internet that can help you decide which renovations can get you the most value for your buck.  For instance, updating a kitchen typically adds more to a home’s fair market value than adding something more basic.

Even if you don’t plan on selling your home after completing your home equity-funded remodel, by increasing your property’s market value through various home improvements, you will have access to larger home equity loans and lines of credit which can be used to finance the purchase of a car, in financial emergencies, or additional home remodeling projects.

When you’re ready to begin transforming your modest abode into the home of your dreams, be sure to hire professionals and ensure that experience is on your side.  How many of us have watched countless hours of home improvement shows and convinced ourselves that we could produce improvements of the caliber only to find that there were very obvious reasons why we keep our day jobs?  Honestly, we’ve all been there.  But like opera singing, cosmetic waxing, and brain surgery, remodeling your home to increase your equity may be a task best left to the professionals (or at least, the very experienced).  It’s always a good idea to ask friends or family for referrals and to use state licensed contractors.

With these basic ideas in mind, you can get one step closer to making the cherished American dream your reality.

Source: Informa Research Services

As a homeowner, you have probably received offers in the mail to apply for a home equity line of credit (HELOC) or a home equity loan (HEL) . If handled properly, these types of loans can provide you with the income you need to handle your financial affairs. To assure that you are getting the best deal, here are some tips you will want to consider to enhance your buying experience:

• Avoid unnecessary fees.  The market for home equity loans can be very competitive. When shopping for the best offer be aware of any application fees, closing costs, or appraisal fees which can drive up your actual costs. Find a home equity loan that does not penalize you if you decide to pay off your loan early, or one that does not charge you a check writing fee each time you access your account.

• Interest rate caps. Like a variable-rate mortgage, a HELOC is subject to change as interest rates fluctuate. This can work to your advantage should interest rates drop. However, be aware of how frequently your rates can adjust upward each year (e.g., quarterly is better than monthly.) Also look at the lifetime cap or maximum amount a rate can adjust upward each year.

• Try to avoid pre-payment penalties. Everyone wants to have the flexibility of paying off their home equity loan early. The reward is not only being debt free but saving on interest charges. Work with a lender who is willing to waive any pre-payment penalties or who gives you the flexibility to make interest-only payments in case you encounter a financial hardship.

• Ability to convert to a fixed rate.  Since most HELOCs have variable rates and can change at different times of the year, what may seem like an attractive rate in the beginning may skyrocket later, should mortgage rates rise. Look for loan features that will allow you to convert to a fixed-rate loan should this happen.

• Shop for the best rates.  Shop and compare for the best HELOC rates online. Be aware of low teaser rates which will escalate after the brief introductory period. Make sure you know the index and margin used to calculate the fully indexed rate. Determine if the rates you are comparing are competitive once all fees have been integrated.

Source: Informa Research Services

Sometimes being a home buyer can feel a little like being a runner – you have to train (get your finances in order), warm up (get pre-approved for a mortgage), and actually run the race (search for a house or real estate). You cannot expect to run a marathon without any prior training, and the same goes for buying a house. Make sure you do all the necessary work in order to ensure a positive home buying experience.

Runners to Your Marks
Taken from your credit history report, your credit score is based on points you receive for being a good borrower. The most common scoring system used for mortgage approvals was created by the Fair Isaac Corporation® (FICO®), which accesses the three main credit reporting bureaus (Equifax, TransUnion, and Experian). Credit scores can range from as low as 300 points to as high as 850 points. People with average credit usually score around 620, good credit at 660, and excellent credit above 720.

It is important that you maintain a good FICO score because it can help you get a mortgage loan with lower interest rates. For example, someone with a credit score of 620 requesting a $215,000 30-year loan may pay an APR of 7.60%. A score of 720 or higher would qualify them for a 6.00% APR (a difference of 1.60%), or a potential savings of $230 per month. Should their credit score fall below 620, they are then in the sub-prime mortgage category, and their mortgage rate could go as high as 8.53%. During the pre-approval process, the financial institution will tell you what range of interest rates [insert link to mortgage rate tables] you are likely to qualify for. Therefore, you should try to get your credit in order before you start shopping for a loan.

Get Set
Before you begin house-hunting, it’s best to find out from your financial institution if you are pre-qualified or pre-approved for a mortgage. But in order to know these things, you first must understand the difference between the two. Do not be caught in an unfavorable home-buying situation due to a confusion of terms.

When a financial institution pre-qualifies you for a mortgage, they are merely giving you an idea of how much you might qualify for. Through the pre-qualification process, you will have to give the financial institution your financial information, including your income, credit score, and debt-to-income ratio. Therefore, when you get pre-qualified, it is based only on what you have told them about your financial situation – the information has not been checked or verified. When you have been pre-qualified, the financial institution will give you a letter which you can present to the seller so they will have an idea of how much you will be able to give them for their house. The next step is to be pre-approved.

Being pre-approved for a mortgage loan not only means that you have told the financial institution your financial information, but also that they have checked all the information and made sure that it is completely accurate. Also, they may have looked deeper into your credit history in order to examine your borrowing habits. A pre-approval will determine the maximum amount you can spend, and it is almost the equivalent of a cash offer because the seller knows that it is secure and trustworthy.

Go!
Now that you have strengthened your credit report and have been pre-approved, you are ready to start looking for the home of your dreams. So, put on your spikes, go to the starting blocks, and when the starting pistol goes off, you can shop for a house with confidence.

Source: Informa Research Services

Banks will encourage their customers to have multiple accounts and services with them. It is good for them because they are more likely to have long-term customers, and it is good for you because you get special incentives and discounts for having your multiple accounts at one bank. These accounts are said to have a relationship with each other, and this is sometimes called “relationship banking.”

For example, if you have a checking account, savings account, and home equity loan all open with the same bank, then with a relationship banking program, the balances in all three of them may contribute to the combined balance requirement.  Also, some fees on the checking account, such as the maintenance fee and foreign ATM fee, may be waived if your accounts have this relationship.  Thus, with relationship banking, all of your accounts help to maintain the others.

What This Means For You
If you are a homeowner and thinking about opening a home equity loan or line of credit, then you should consider relationship banking. If you already have one or more accounts open at a bank, then you should ask your current bank if they offer a relationship banking program, and if so, what benefits you would receive if you were to take advantage of it by opening a home equity loan with them.

Here are some of the possible benefits that would result from having your home equity loan account in a relationship with your other accounts:

• The balance in your home equity loan account may contribute to the combined minimum balance requirement.  When this minimum balance is maintained, the monthly maintenance fee for your checking account is usually waived.

• Other fees, such as check imaging or foreign ATM withdrawal, may be waived.

• You might be offered a lower interest rate on your home equity loan.

But you should also be sure to check other banks and financial institutions for low interest rates on home equity loans. It is possible that a low enough interest rate without relationship banking may save you more money in the long run than a relationship banking product with a higher interest rate. Be sure to do your research by comparing the products and rates of different financial institutions, including your own.

Other Things to Keep In Mind
When you have a home equity loan as part of your banking relationship, it is often required that your monthly payments on the loan be paid automatically from your checking account.  This may or may not be a desired characteristic, depending on your situation.  You may enjoy this feature because it takes the hassle out of making your payments; you may dislike it, however, if you prefer making payments yourself so you know when money is going out.  It really depends on your unique situation and preferences.

Always be sure to shop around for the best interest rates and payment plans. Compare all your options before making a decision so you can get the home equity loan that’s best for you.

Source: Informa Research Services

Here are five things that lenders will examine when considering you as a home equity loan borrower:

1. Your credit history. Lenders will look into your credit history, which is a record of your past financial behavior, in order to determine the likelihood that you will responsibly make your loan payments in the future.  Your credit history is contained in a credit report that details such things as your credit card history, the amount of outstanding debt you have, the type of credit in use, the length of your credit history, and the amount of credit you use as compared to the amount that is available to you (referred to as your qualifying ratio).  Your credit history and report also include your credit score, which is a number ranging from 300 to 850 and based on the aforementioned aspects of your borrowing record.  Therefore, the details included in your credit report are represented by one number, in the form of your credit score.  When you apply for a home equity loan, the lender will use your credit score as a guide to determine whether or not you are a credit risk.  Therefore, be sure to maintain a good credit score, so that you will be more likely to receive a loan with a lower down payment and lower mortgage rates.

2. Your source of income. In addition to your credit habits, lenders also like to know about the source and stability of your income.  They know that the details of your situation in this area are a major factor in your ability to keep up with your monthly loan payments.  They want to know such things as whether or not you are self-employed, and how long you have been working in your current field and at your current job.

3. Your debt-to-income ratio. This is a measure of how much of your monthly income goes to paying off debt, such as your mortgage, credit card bills, and car payments.  Most people are expected to have a debt-to-income ratio between 25% and 50%.  The less debt you have, the more likely it is that you will be offered a good home equity loan, because it is more likely that you will be able to pay your bills on time.

4. Loan-to-value (LTV) ratio. When you divide the sum of the amount you owe on your mortgage and the amount of your home’s equity that you want to borrow by the appraised market value of your home, the result is the loan-to-value ratio, or LTV ratio, for a home equity loan (it is calculated differently for a traditional mortgage).

For example, if your house has a market value of $200,000, and your first mortgage has a balance of $50,000, then your equity is $150,000.  Then let’s say you want to borrow $50,000 against that equity.  You add that amount to the $50,000 of your mortgage balance to get $100,000, which is your total debt.  Dividing $100,000 by the $200,000 that your home is worth, you get an LTV ratio of 50 percent.

Typically, the better your credit, the more money a lender will let you borrow, and a higher LTV ratio they will allow.  LTV caps are usually at 80%, but some lenders will give out loans of 100% or more loan-to-value, which means that they are letting you borrow more than what your house is worth.  Be careful though – there are risks involved with high-LTV loans.

5. The purpose for the loan. Even though you are not required to share your intended purpose for getting a home equity loan, it is still a question that lenders will usually ask.

Source: Informa Research Services

It’s almost the fourth of July.  The hot dogs will be sizzling and the watermelon will be juicy.  But will your backyard be in shape so that your family and friends can enjoy them?  If you’ve been thinking about starting a remodeling project – be it landscaping, installing a deck, or fixing up the pool – but have hesitated because of the financial aspect, you should consider tapping into your home’s equity.

There are two ways you can do this: with a home equity loan or a home equity line of credit.  With a home equity loan, you will receive a one-time payout with the stability of a fixed interest rate and monthly payment.  With a home equity line of credit, on the other hand, there is a variable interest rate (sometimes with an option of a fixed rate as well), and you will have the flexibility to use your line of credit at anytime, which is ideal if you have ongoing financing needs.  The interest accrued on both of these home loans areusually tax-deductible.  Your situation and the type of your project will determine which of these loans is better for you.

Getting Started
Here are the steps you need to take toward using your home’s equity to beautify your backyard:

• Decide which loan is sizzling for you. As mentioned above, there are several differences between home equity loans and home equity lines of credit.  If you are ready to pay for your project now, and you therefore want one lump sum and a fixed interest rate, then a home equity loan is right for you.  But if you need to make payments to a contractor, and would rather have ongoing access to your funds and a variable interest rate, then you should look into home equity lines of credit. Consider your situation before committing to one loan or the other.

• Bite off only what you can chew. There are also options having to do with repayment plans, such as principal and interest or interest-only.  Make sure you know all your repayment options so you know you are getting the best plan for your situation and lifestyle.

• Use all the fixins. You can visit your local branch and fill out an application, or you can do it over the Internet.  Most banks today have online applications which you can fill out from the convenience of your own home, and they promise to give you a quick response, sometimes in seconds!  This certainly relieves some of the hassle of visiting the bank, and it definitely saves time. After you apply, they will tell you if you qualify, and if so, how much credit is available to you and what kind of interest rates  you can get.

• Know what’s on the menu. Use the Internet or make phone calls, but be sure to shop around for the best interest rates.  Do not settle on a loan from one bank before you know what other banks can give you.

A home equity loan or home equity line of credit is a great way to finance a home renovation project because although you are borrowing against your home, you are putting the money right back into your home, thus increasing its value, which will serve you well in the future.  So after you fix-up your backyard using your home’s equity, and after you have been showered with compliments from family and friends, all you need to do is throw some hamburgers on the barbecue, pour yourself a nice cold glass of lemonade, sit back, and enjoy the fireworks. You’ll be glad you did!  Happy 4th of July!

Source: Informa Research Services

While both sources of financing – home equity lines of credit and credit cards – are revolving, or open-ended, and therefore can be used for the same types of expenses, it is important to know the differences between them so you can use them as wisely as possible.

Similarities
The similarities between home equity lines of credit and credit cards include:

• They are open-ended. With both, you have ongoing access to your funds.  Therefore, you can use both of them to finance ongoing expenses.  (There are limitations to this, which are explained below.)

• They have special rates. Both can offer low introductory rates.

• They have variable interest rates. On both, the interest that you pay is variable. That means that it is tied to a specific index; in most cases the prime index is used. When the index drops, your interest rate drops, and when it goes up, the rate goes up.

• They have card offers. Obviously, when you have a credit card, it is the medium through which you access your credit.  Similarly, with a home equity line of credit, you have the option of getting a card to access your line of credit.

Differences
Following are some of the differences between home equity lines of credit and credit cards:

• Limitations. Most home equity lines of credit have a specific period in which funds can be accessed, whereas credit cards do not.

• The level of interest rates. The interest rates on home equity lines of credit are typically a lot lower than those on credit cards.

• Tax benefits. The interest on a home equity line of credit is usually tax-deductible, whereas that on a credit card is not.

Do’s
• Many consumers are using their home’s equity to help fund their children’s college education.  This is a great use of it because it is a good investment in their future.

• Another very popular use of a home equity line of credit is to finance a home improvement or renovation project.  The benefit of having access to your funds can be combined with the benefit of putting money into your house and increasing its value and its equity for future use.  So, in a way, you are giving the money back to yourself.

Don’t’s
• Even though you can use your home equity line of credit like a credit card, that does not mean you should. Let your credit card cover everyday expenses, and use your home equity line of credit for large purchases, such as home renovations or college tuition.

• Because of the difference in interest rates, some people advise using a home equity line of credit.

Source: Informa Research Services

If you are planning a big project, and thinking about financing it by applying for a home equity loan, you need to take two preliminary steps.  You first need to decide which type of home equity loan is right for you.  After you have done this, you need to begin the actual application process by qualifying for that loan.  The following information and tips will help you make a well-informed decision and have a positive shopping and application experience.

Knowing what type of loan to apply for begins with picking the one that best suits your needs. With a variety of lenders competing for your business, choosing one because it has the lowest mortgage rate shouldn’t be your only consideration. The two types of home equity loans are a Home Equity Loan (HEL) and a Home Equity Line of Credit (HELOC).  Both are secured by the equity in your real estate, and the interest on both is usually tax-deductible. But they also have several differences. Deciding which one is better for you begins with answering some basic questions:

• What are you planning to use the loan for? Depending on the purpose for the loan, you might prefer one lump sum (which you would receive with a home equity loan), or the flexibility of ongoing access to your funds (which a home equity line of credit offers).

• For how long do you intend to use the money? If you need the money for a long period of time, then a home equity line of credit, which offers ongoing access to your funds, might be better for you.  But if you only need the money right now to make one payment, then you should probably look into getting a home equity loan, which gives you the money in one lump sum.  Also, a home equity loan is a fixed-term loan, whereas a home equity line of credit is a revolving credit account, meaning that there is no term.
• How much will it cost to repay my loan? If you would prefer having a steady, fixed payment over time, then a home equity loan is what you need.  But if you would rather have a variable payment, knowing that the interest rate can change at any time, then a home equity line of credit is probably better for you.

Available Credit
Typically, most financial institutions will let you borrow as much as 80% of the Loan-to-Value (LTV) – the amount of a mortgage loan divided by the appraised market value of your home – less any outstanding mortgage payments on your property.  However, some institutions may allow you to use up to 100% of the equity in your home.

When considering your available credit line, the lender may take into consideration other factors including your past credit history, your current income, and your ability to repay a loan.  After your credit history has been evaluated, a report will be generated which includes your credit score and lets lenders know whether or not you are a good borrower.

Your credit score is calculated by the Fair Isaacs Corporation (FICO), which accesses the three main credit reporting bureaus (Equifax, TransUnion, and Experian).  Credit scores can range from as low as 300 points to as high as 850.  People with average credit usually score around 620, good credit at 660, and excellent credit above 720.

Anything less than good credit, such as a car repossession or bankruptcy, may fall into the sub-prime category, which usually places borrowers in a higher interest rate category.  Once approved, borrowers can withdraw money up to the available amount, usually by check or credit card.

You can build and maintain a good credit score by always paying your bills on time, and by keeping a good utilization ratio.  This means using less credit than is actually available to you.  FICO scores are based on your rating in five general categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%).  Whether you are new to using credit, or have been a long-time borrower, keeping these categories in mind and maintaining responsible borrowing habits can help you strengthen your credit score.  And this strengthened credit score will help you to qualify for a better home equity loan or line of credit . When qualifying for a loan, always shop online for the best home equity credit terms that meet your specific needs

Source: Informa Research Services

June is again upon us, and with it comes the beginning of the wedding season.  The average amount of money spent on weddings has been increasing over the past several years, and CNNMoney.com reports that it has now reached $27,852. 

If you’re planning a wedding, then you know how easy it is to rack up a bill of this size.  But you can’t spend all your time worrying about the money; you also have other things to think about – the invitations, the menu, the flowers… and the list goes on and on.  So why don’t you go work out those details for your perfect wedding, and let us take some of the stress off by helping you with the money issues.

Here are some of the options you have for financing your dream wedding:

• Some banks offer unsecured loans for weddings and other special events, so that you have a certain amount of money to spend on virtually everything related to your event.  This can be helpful because there are certain companies that only accept cash and checks.  These loans make it easy to access your available funds whenever you need them.

• Another way to borrow in order to finance your wedding is through the use of credit cards.  Look for cards that offer rewards, such as cash back and points that can be redeemed for trips and merchandise.  Also, look for a credit card with an introductory annual percentage rate (APR) of 0%.  Keep in mind that even though credit cards are an easy way to finance some of the wedding cost, you should pay them off as soon as possible, since the mortgage rates on them are higher than on most other loans.

• Many factors, such as people wishing to further their education, women’s heightened focus on their professions, and a rise in the number of couples living together before getting married, have led to an increase in the average age of brides- and grooms-to-be.  Therefore, it is more likely that a couple, or at least one of the two, will own their own home by the time they get married.  Another option, then, for couples in this situation is to open a home equity loan or home equity line of credit. These usually have a lower interest rate than do other loans and credit cards, and that interest can be deducted from your income tax.

When it comes to your short-term goal of planning a beautiful wedding, these are the three best options to consider.  But when it comes to your long-term financial goals, do not forget about the importance of discussing your spending and saving habits with your partner.  Money is cited by relationship experts as the No. 1 problem newlywed couples face, and it is often the source of broken relationships (Source: Daily News, 2-2-07). Therefore, it is imperative to get these matters out into the open in order to develop a financial system that will work for both of you, so that your marriage will not suffer later.

But, in the meantime, you have a wedding to plan.  So go figure out whether you’re going to seat your grandfather next to crazy Aunt Millie, what the ratio is of chicken to steak, and what kind of blender you want on your wedding registry.

Source: Informa Research Services

Summer time is fast approaching and many people are now planning their perfect getaway. A stay in an over-water bungalow in Tahiti, an exciting safari in Kenya or bungee jumping in New Zealand are just a few of many great vacation options. But unfortunately they come with a high price, and the reality of financing their dream summer vacation keeps many people dwelling in the winter blues.

For many people, the way out of this dilemma is a home equity loan to finance their dream summer vacation. Traditionally, home equity loans are used to finance home improvement projects. But this type of loan has become a popular option to finance other items, such as unexpected medical bills, cars or college expenses. Many people also use home equity loans to consolidate credit card debt because home equity loans generally have lower interest rates  than credit cards.

But no matter if you dip into your home’s equity to upgrade your old-fashioned kitchen, to pay for your daughter’s tuition fees or to cruise through the Caribbean, it is important to ask the right questions when getting a home equity loan.

To help you get the best deal based on your financial situation and your goals, here are a few questions that you should ask your potential mortgage company:

Fixed mortgage rate vs. adjustable mortgae rate. If you consider a home equity loan with a fixed interest rate, make sure to inquire about penalties in case you decide to pay off the loan before the term ends. With an adjustable rate it is wise to ask how often the lender adjusts the rates, what margin they have above the index (in most cases it is based on the Wall Street Journal prime), and if there is a cap as to how high the interest rates can rise.

Make sure you know all about the fees. From appraisal fees to closing fees – home equity loans often involve various fees. Inquiring about these fees before signing can save you from a bad surprise.

Ask about discounts. Taking advantage of promotional interest rates and discounts for automatic payment can help you save a lot of money.

Bahamas anybody?

Informa Research Services

Splish splash, I was taking a ….. Wait! That doesn’t just have to be the song that gets stuck in your head anymore! No, you can actually take a splish splash by building that swimming pool you have always wanted. Well, before you dip into the equity in your home to fulfill your dream, make sure you understand the fees associated with a home equity loan.

Home equity loans and lines of credit are saddled with a variety of fees. You should shop online to compare before diving into one of these loans. For example, if you apply for a home equity loan, you will most likely be charged fees for closing costs, points, as well as some third party fees. These third party fees that get passed on to you may include appraisal fees, title insurance, escrow fees, homeowners insurance, flood certification fees, and recording fees. Some banks will also charge customers a prepayment penalty fee if they close out the account before a certain timeframe – typically within the first three years. Home equity lines of credit carry most of these fees as well, and they also tend to have annual fees attached to them.

Closing costs typically range from $300 to $500, and banks will oftentimes offer to absorb these fees. However, there can be a slight catch with this kind of offer, so you need to beware! Some banks will offer to pay the closing costs on a home equity loan or line of credit, but in turn, will offer customers a higher interest rate on the loan than if they had paid for the closing costs themselves. Some banks offer options in which if the customer pays the closing costs, they will receive a better interest rate.

So before jumping on an offer that claims to have lower fees, or none at all, make sure you do your research. Find out if the bank has a lower interest rate option for a fee-based loan so that you can make an informed decision and not end up with a higher interest rate, which can actually cost you much more in the long run

Informa Research Services

While homeowners continue to invest their money in improvements to increase the resale value of their existing homes, many are turning toward “green materials” to make their living space more eco-friendly, according to a leading Minneapolis design firm. With dwindling resources and global warming on everyone’s minds, homeowners are looking at ways to incorporate earth-friendly products into their existing surroundings.

Advancements in technology, along with new energy efficient products, give homeowners a choice of design options that weren’t available to them just a few years ago. Real estate can be restored to their natural beauty both ecologically and economically with natural materials like cork, bamboo, recycled aluminum, and bronze – not to mention the tax credits that may be available from your local energy provider for using energy saving products.

To help fund these remodeling projects, many homeowners will turn to the traditional Home Equity Loans (HELOC) as a source of funding. HELOC mortgage rates  (7.96% APR national average) are generally lower than those of credit cards (12.15% APR national average) or personal loans (13.09% APR national average) and have the added benefit of being tax-deductible in most instances.
Here are some tips you’ll want to consider to help you pick the right HELOC:
• Avoid unnecessary fees.  The market for HELOCs is very competitive. When shopping for the best offer be aware of any application fees, closing costs, usage fees, appraisal costs, or maintenance fees which can drive up your actual costs. Find a HELOC that doesn’t penalize you if you decide to pay down your principal early.

• Ability to convert.  Since most HELOCs are adjustable and can change at different times of the year, what may seem like an attractive rate in the beginning can skyrocket later on should interest rates rise. Look for loan features that will allow you to convert to a fixed mortgage if this happens.

• Shop for the best rates.  Comparison shop for the best HELOC. Be aware of low teaser rates which may escalate after the brief introductory period. Make sure you know the index and margin used to calculate these rates. Determine if the rates you’re comparing are competitive once all fees have been integrated.

Whichever loan you choose, do your research first. Select the right HELOC that offers you the greatest flexibility with the least amount of restrictions.

Source: Informa Research Services

With the market for existing home sales declining, homeowners are deciding not to sell their homes but upgrade instead, according to Informa Research Services. A recent study conducted by Harvard University’s Joint Center for Housing Studies, estimates that Americans spent $155 billion on repairs and home improvements in 2006, a 2.8% increase from 2005. That number is projected to rise to $160 billion in 2007.

Should interest rates and home appreciation values hold steady, many homeowners will continue to invest their money in improvements to increase the resale value of their existing homes — it’s cheaper to remodel your home than it is to move. However, should the tide turn in favor of higher interest rates and home values depreciate, then the sudden downturn in home equity borrowing could make it difficult for homeowners to recoup their costs once a home is sold.

For those looking to remodel, other financing options exist versus the traditional Home Equity Line of Credit (HELOC). While HELOC interest rates (7.65% APR national average) are generally lower than those of credit cards (13.82% APR national average) or personal loans (12.78% APR national average), there are instances when a credit card may make more sense (e.g., using a low-introductory rate or fixed 3.99% APR to fund a small remodeling project until the balance is paid in full.)

In most cases the interest on HELOCs are tax-deductible – unlike a conventional loan which may be fixed – however, the rates are variable which can rise or fall based on market conditions. It’s best to always pay close attention to the most current rates and choose the finance method which fits your needs the best.

So before you decide which loan is right for you, consider the following:

- Prioritize your remodeling projects. Look at what comparable homes are selling for in your area and what features they include. You may decide that the cost to add an outdoor patio or an extra room is more than you can recoup once you’re ready to sell the house or are planning to move in the next year. Consider a minor improvement (e.g., new kitchen cabinets and a sink) instead of a major kitchen remodel – the costs of which you can recover once your home is sold on your real estate investment.

- Create a budget you can afford.  A HELOC is basically a line of credit which you make monthly payments on for the borrowed amount. Should you get approved for an amount greater than what your remodeling project calls for, use only what you need and avoid spending the difference on unnecessary luxury items. Your goal should be to create value in your home and not incur additional debt.

- Shop for the best rates.  The market for loans is very competitive. Comparison shop for the best rates online. When shopping for a HELOC be aware of the following charges: closing costs, commissions, check writing, appraisal, or maintenance fees. If using a credit card, avoid low teaser rates which may suddenly escalate after a brief introductory period. Determine if the rates you’re comparing are competitive once any fees are integrated.

There are other choices you will be faced with when applying for a loan, like being able to pre-pay your balance without penalty, or converting a HELOC to a fixed loan when interest rates rise. Whichever loan you decide to choose, go with the one that offers you the greatest degree of flexibility and the least amount of restrictions.

Once your home improvement project is complete, you’ll take comfort in knowing that the pleasure you receive from your investment far outweighs the time you took to research your options.

Source: Informa Research Services

One of the more significant trends of 2006, has been the struggle of American households to save money, according to Informa Research Services. With a steady decline of disposable income due to rising mortgage costs, and inability to save, hard-pressed households are finding it difficult to meet day-to-day living expenses. Most are turning to competitive Home Equity Lines of Credit (HELOC) or low credit card rates to pay off their existing debts.

Nearly half of the U.S. workforce with children under the age of eighteen manages their monthly bills by living paycheck-to-paycheck. This has turned the payday loan industry into a thriving $4.2 billion annual business. Based on a survey conducted last year by Harris Interactive, nearly 45% of adult households did not have enough in liquid savings to cover at least three months of living expenses in case of an emergency.

So you won’t be caught off-guard, here are six tips you can follow to set-up your “rainy-day” emergency fund:

1. Organize your expenses – Before you can determine how much to save, you need to assess your current spending habits. Start by categorizing your monthly living expenses (e.g., mortgages, utilities, credit cards, auto loan, etc.). Next add-in your periodic costs (e.g., property taxes, homeowner or renter’s insurance, annual renewal fees, etc.). Review where your spending is going and if cuts can be made. Use a program like Quicken to track your expenses all in one place. Or check to see if your bank offers a Bill Pay program to help you better manage your scheduled payments and spending, automatically.

2. Pay-off your existing credit cards – Paying off your credit cards should be your top priority before starting any savings program. The money you can save in interest payments alone, far outweigh the return of any savings investment. Pay-down your highest yielding interest credit cards first. Then consolidate your more expensive loans into one card which offers a low- to zero-interest balance transfer.

3. Develop a savings goal – Determine how much you need to save each month to cover at least three to six months in emergency expenses. List as many items you can think of, including your monthly living expenses. If your goal is to save 10% of your gross savings each month, and you only have 8% left over after expenses, then look at creative ways you can cut costs to make up the difference.
 
4. Open a liquid savings account – Keep your emergency fund separate from your regular savings or checking account. Comparison shop for a liquid savings account which offers you a competitive rate of return, like a high-yield interest savings or money market account. Some can be opened with a low minimum balance, offer additional deposits in any increments, have check writing privileges, and debit card access.

5. Set-up automatic deposits – While funds can be added to an account at any time, consider setting up some form of automatic or systematic deposit. You determine the amount and frequency of the funds transferred, either through payroll deductions or direct transfer from another account.

6. Store away additional cash – Make it a habit to deposit any unforeseen windfalls into your emergency fund. For instance, learn to put away that tax refund, company bonus, or lottery winnings. Should you need to access your emergency funds, set up a repayment schedule by budgeting for the amount you’ve withdrawn.

Your success in building your emergency fund will come from your discipline in developing good savings habits without tapping into your fund for non-emergencies.
 
Source: Informa Research Services

With the holiday season in full-swing, many consumers are turning to alternative methods of financing to fund their luxury gift purchases, according to Informa Research Services. Affluent consumers, who account for 25% of U.S. households (based on income), plan to spend on average $1,903 for their holiday gift purchases, cites a recent study by Unity Marketing.

With a household income of $149,100, luxury consumers with discretionary income can afford to be more generous with their gift giving this year. Even though automobiles, trips and gift cards continue to be the gift of choice, clothing, gourmet food and spa packages are increasing in popularity.

While consumer debt is at a record $2.7 trillion dollars, being debt free can be a luxury in itself. However, if paying cash isn’t an option, there are other less expensive ways to borrow which offer better financing than department store or dealer rates. Some of the other more popular methods include:

Home Equity Line of Credit (HELOC) – A HELOC is basically a line of credit which you make monthly payments on for the borrowed amount. Like a credit card, the interest rate is variable and tied to the prime rate plus a margin. The amount you qualify for is usually based on the difference between your current home market value and your outstanding mortgage balance.

Primarily used for home improvement or debt consolidation, HELOCs account for 28% of consumer credit accounts according to a recent Home Equity Study conducted by the Consumer Bankers Association.

Home Equity Loan (HEL) – A HEL is a second mortgage. You are given a lump-sum of money upfront, which you pay back in installments over a fixed period of time, typically 10-15 years. While the time to re-pay a loan is shorter than a traditional mortgage (usually 30 years or greater on a fixed term), borrowers like the flexibility of having a low monthly payment.

HELs offer a reasonable mortgage rate (7.87% national average) then a comparable unsecured personal loan (13.20% national average) and are tax deductible like HELOCs under normal circumstances.

Credit Card(s) – With nearly 75% of all consumers expected to use credit cards this holiday season, many lenders are offering zero- to low-introductory rates, extended warranties, rebates or points programs to attract customers. For a small fee, you can access just the amount you need to finance your purchase and schedule your monthly payments to coincide with your low introductory APR.

So before you purchase that backyard water park for the kids at $100,000 from this year’s Neiman Marcus Christmas Book, or spend $2,000 on a high-definition TV, consider setting a realistic budget with a specific repayment schedule in mind. It’s easy to get caught up in the shopping hype when you can’t afford to. Finding less expensive ways to borrow money can help ease your financial burden over the holidays while getting you the most for your money in return.

Source: Informa Research Services