Cash Out Refinancing Loans vs. Home Equity Loans

One of the products that some homeowners find confusing is the Cash Out Refinancing Loan. Many people use Cash Out and Home Equity Loan interchangeably; however they are different loan products with some similarities. Here is some information on both of these types of loans.

Cash Out Refinancing A cash out refinancing loan is part of the umbrella of refinancing loan products. A refinancing loan is a new loan to pay off an older loan, using the same property as collateral. With a cash out refinancing loan, you can "cash out" the equity of your home that has appreciated over the years. For instance, if your home is appraised at $200K and you only owe $100K on the original mortgage, you have $100K of equity built up. A cash out refinancing loan allows you to refinance the loan and also let you access some of the equity built up. In the above case, you can refinance your home for a total of $150K, cashing out $50K of equity.

Home Equity Loan A home equity loan is different from a refinancing loan; it is a second mortgage that is secured using your home as collateral. The original mortgage is still in place. With a home equity loan, you do not refinance your home, but just cash out the equity. If you are happy with the interest rates or current terms of your mortgage and would just like to have access to your equity, a home equity loan is the right choice.

Pros & Cons For homeowners that need quick access to their equity, a home equity loan is the much quicker way to access it. While a cash out a refinancing loan can take several weeks or more than a month to close, some home equity loans can close in as little as one week.

Another advantage of the home equity loan is that there are usually lower fees involved. You are usually not required to pay points, but only normal closing and administration fees.

If you are interested in repaying your loan over the long haul to reduce your monthly payment cash out refinancing loans is your best option. Most loans in this category have 15 year or 30 year terms and a low rate.

If you are looking for the lowest rate for a loan, the cash out refinancing loan is typically more competitive than a home equity loan. However, most refinancing loans include points that can make these rates less attractive.

by Connie Barker

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FHA or Conventional - Pros and Cons

FHA and Conventional mortgage loans have both been around for a long time. They will most likely both be around for a lot longer as well. Even with the recent "mortgage meltdown" as Wall Street is calling it, both types of mortgage financing are here to stay. Actually, with the mortgage crisis that is being discussed in every newspaper and on every news channel in the nation, FHA loans are beginning to become increasingly popular again.

The FHA, Federal Housing Administration, has been insuring properties since it was established in 1934. FHA tends to be more lenient when it comes to credit, credit scores, calculating income and certain underwriting guidelines than conventional mortgage lending. FHA was designed to assist potential homeowners with owning a home for less money and easier qualify criteria than typical mortgage loans. FHA is the only government agency that operates without a dime of money generated from taxes and operates from self-generated income alone. Unlike traditional mortgage lending, FHA does not use credit scores as a main determining factor as to whether a consumer qualifies for a home mortgage loan or not. Instead, they look down deeper into a consumer's file, payment history and their overall worthiness as a borrower. FHA interest rates are generally very similar to conventional mortgage loan interest rates and qualifying is generally much simpler. So why doesn't everybody just get an FHA loan since they sound so wonderful? Well FHA loans do have stricter guidelines when it comes to a property, the condition of the property, and their appraisal requirements. Along with this FHA loans add what is called an MIP fee on top of your loan amount which is 1.5% of the loan amount.

Thus if you were buying a home for 100,000 you would actually be borrowing 101,500. This fee is for what is known as Mortgage Insurance Premium. This is different than PMI and the MIP is required on all FHA loans, regardless of down payment or equity in the home. FHA mortgage loans also require a monthly mortgage insurance premium which is included in your monthly payment for all loans that do not have at least 20% equity or a 20% down payment made. Therefore, while there are advantages to FHA loans, there are also some disadvantages to.

Conventional loans have been around for a long time as well. While FHA used to own such a large percentage of mortgages with lower credit scores and more lenient income and underwriting guidelines, conventional loans have started coming out with programs to compete with FHA loan products. Fannie Mae, or FNMA, has come out with a My Community loan program that allows for as little as no down payment and has much less restrictions when it comes to credit and credit scores. Freddie Mac, or FHLMC, has also come out with a product of their own which is called Home Possible to compete with FHA as well. Conventional loans are more driven by credit scores, assets, compensating factors, loan terms and other items. Both of these products are becoming increasingly popular and a great alternative to FHA loans in many situations. These programs allow for the same great conventional loan rates, lower credit score requirements than a normal conventional loan, and the ease and quickness of the conventional loan process from start to finish. Conventional loans will also require the use of PMI for mortgages without a 20% down payment as well, but with some conventional loan products there are ways around the PMI requirements. There is no MIP added to your loan amount on conventional loans like there are with FHA loans, but the PMI on a conventional loan is generally a little higher than the monthly MI on an FHA loan.

Therefore, both types of mortgage programs, FHA and Conventional, have their pros and cons and they both provide a quality mortgage product for qualified consumers. Some situations will call for an FHA loan and with the recent subprime meltdown and the topsy-turvy mortgage market right now, FHA loans are becoming more and more popular. However, I would still recommend contacting a conventional mortgage lender first to obtain your mortgage from and if you do not qualify there, then try the FHA route. Neither type of mortgage is a bad decision and whichever option can get you into a home at a payment you can afford is a good choice.

by David Zwierecki

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12 Pros and cons of debt consolidation

In the consumer based society of the modern world debt is apart of life and existence. Advertisements, brochures, news reviews and more promote spending what you have not earned and the end result is debt. After debt reaches epidemic proportions, the marketing whizzes focus on how to consolidate debt. The TV, radio, web sites, magazines, and newspapers call carry advice on solving debt and how debt consolidation can be the answer to your prayers.

An average US family has at least four credit cards with all the available credit used up, a home loan, car loan, education loan and a consumer loan. Soon the payments owed every month are higher than the income. The world in reality is not all sunshine and debt has its ups and downs.

Here are a few important pluses and minuses of debt consolidation:

* Pluses:

a. You club all loans into a single one and work out a feasible EMI and interest rate. b. Most consolidation loans carry a much lower interest rate in comparison to other credit card or consumer loans. The most popular being the home equity loan. c. Consolidation means a lower monthly payment to be made over a longer period. It is important to try and pay back not the minimal EMI but the largest possible. d. Many home equity loans come with a tax breaks which in the long run is a saving. e. Instead of juggling many payments at different interest rates you need to only provide for the steady repayment of a single consolidated loan. And there are no tensions of delayed payments, wrong amounts paid or forgotten payments. f. Consolidating debt means avoiding declaring bankruptcy. By consolidating debt and formulating a financial budget you can hope to improve credit scores as well as reports. g. By taking the debt consolidation step at the right time you will be able to start life afresh and learn how to manage your finances without the accompanying tensions of loans owed.

* Minuses :

h. Many individuals are unable to discipline themselves and once funds are available they begin binging creating more debts and slipping into deeper debt instead of swimming to safety. i. Consolidation loans have long tenures, say 10-30 years. This means instead of clearing debt in say two years at high interest rate you will be clearing the loan over several years. You will be tied down and your property or asset will remain mortgaged to the home equity loan. j. In depth calculations indicate that you may land up paying more as the loan will be paid over many years. In addition any late fees and penalties you may incur will add to the burden. k. Since the debt consolidation loan has your home or property as collateral you stand to loose the collateral if you do not pay or default on payments. l. Consolidation loans give a false sense of security and complacency. The urgency to pay debts of will not exist.

by Aaron Brooks

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Pros and Cons of 30 Year Versus 15 Year Mortgages

When we talk about mortgages, we usually focus on interest rates alone. But there's something a lot more basic to consider first. How long is the best mortgage term: 30 years or 15 years?



30 Year Versus 15 Year Mortgages



There are two key issues when it comes to mortgages. One, how can you make yourself eligible for the biggest loan with the smallest payment? Two, how can you find the interest rate that is the lowest possible? Of course these are vital parts of a mortgage, there is another issue that some people overlook altogether and end up losing money.



A mortgage term is very important for a few reasons. For one, it specifies how long you are obligated to pay the lender. For another, it decides how much interest you'll be paying during the duration of the loan. In terms of equity building, these are really major concerns.



The longer you borrow money, the more interest you'll pay overall. Of course you will have smaller monthly payments if you can extend your mortgage over a long period of time, which is an advantage in some respects. When you're initially signing the mortgage it sounds great, but in the long term it can burn you.



Many homeowners single out the interest rate as a way to save on mortgage costs. This has its merits but it isn't nearly as effective as taking out a shorter loan. If you choose a mortgage with half the length, you'll be astounded at the savings on overall interest to the lender.



Choosing the term length of your mortgage loan is a choice that is up to you. Both have advantages and disadvantages, and your financial situation decides which is best for you. Shorter loans will have bigger monthly payments, so you need to figure out if you can afford them. Generally speaking, 15 year mortgages will have payments that are between 20% and 25% higher than 30 year mortgages. On the plus side though,you'll pay off the loan more rapidly and build equity in your home faster.



The mortgage market today carries products with various term lengths. The next time you're applying for a home loan, take a moment to compare the different terms and try to choose a loan that fits your circumstances.

by Adam Hefner

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Pros and cons of secured homeowner loans

A secured homeowner loan is also known as second charge mortgages. It is a kind of loan obtained by a second charge on an already mortgaged property. In our common parlance, a home loan is a loan given to the owner of a home. It is not borrower's original mortgage, rather an extra loan that enables you to ask for money based on the equity of your home.

Based on the risk factor, a secured personal loan is comparatively easier to obtain than an unsecured personal loan because the loan has been given to the borrower against his home equity. Therefore, the lender feels it secure to give money against your home. The lender will be legally empowered to take away your property if you fail to pay back in time as agreed upon during the time of payment.

Obviously, the Secured homowner loans are cheaper in contrast to the unsecured personal loans. The rate of interest for this kind of personal loan is very low with smart terms and conditions. Depending upon the factors like amount of money, time period and personal details, the secured homeowner loans are usually obtainable for sums of between £3,000 and £150,000. The length of time ranges from three to twenty-five years. However, there are no hard and fast rules to fix the amount. The lender is allowed to give any amount. It all depends upon the credibility and trustfulness of the borrower. Even some lenders are lending as much as 125 percent of the equity; however, it happens in case with relatively low value properties.

Pros of secured personal homeowner loan

Any kind of borrowing is not advisable. However, sometimes we are forced to borrow due to certain factors like social obligation, personal requirement, education of the children etc. Since, a number of lenders are ready to pay you a secured loan, you must have a clear-cut idea on the pros and cons of secured personal homeowner loan.

Pros

The greatest advantage of personal homeowner loan is that it is cheap (low rate of interest).

You will also get sufficient time to pay back the amount you have borrowed.

In some cases, affordable monthly installment system is arranged for homeowner loans.

Cons

Just remember, borrowed money is not free money. There is a chance of loss of ownership if you fail to repay the money.

It may induce you to spend more since the interest rate is low.

The borrower must be rational first. He or she must invest the borrowed money in some business, in family needs, education of children even reconstruction of home. As a borrower, you should keep detailed information of the lender and his credibility before going for a secured homeowner loan.

by Steve C Clark

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Reverse Mortgage Pros and Cons

Reverse mortgages do not have a repayment schedule like traditional mortgages and are typically not repaid until the borrower dies, moves, or refinances. As such, reverse mortgage terminations are based on life expectancy and voluntary loan payoffs associated with moving out of the mortgaged property. Reverse mortgages likely will be used when a senior needs cash on a monthly basis, is in foreclosure, or has large medical expenses to be paid. Reverse mortgages are a special type of home loan that lets a homeowner convert the equity in his/her home into cash. They can give older Americans greater financial security to supplement social security and improve their quality of life.



The largest dangers of reverse mortgages is the cost. Although not out of pocket it is still a cost. Reverse mortgage origination fees can be very steep. For example, the benefit of never having to repay more than the value of the home comes at a cost: special insurance premiums be paid at closing and throughout the life of the loan. Reverse Mortgage Loans are unlike traditional loans or forward mortgages in many ways. Even the costs are figured differently. Reverse mortgages have evolved far beyond their early days, and FHA's role in evolving and regulating this versatile tool has been substantial. Today's programs are more straightforward than ever.



FHA insurance will cover any balance due the lender. None of your other assets (including personal checking or savings accounts) will be affected by HUD's reverse mortgage loan, and this debt will never be passed along to your estate or heirs. If they want to keep the house they will only have to pay off the reverse mortgage balance and it is theirs.



Interest charged on reverse mortgages is "accrued". That is, there is no payment of interest until the loan comes due. Since you are not making any payments the balance of the loan will increase because of this interest charges. Adjustable Interest rates can change based on changes in published indexes. But the more adjustable they are, the lower they start so they give you larger cash advances.



The reverse mortgage scenario can be hard to dig through. If you need any help I recommend AARP or HUD websites for more information. There is also a bunch of articles at http://wisconsinreversemortgages.net

by David Forer

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Student Loan Payoff Through A Home Equity Loan

As many college students go through the rigors and necessary steps to finish their educations, once they're done and successfully graduated, they know it's time to start their own, independent lives. With school out of the way, jobs on the horizon and a bright future ahead many will be seeking to purchase their own homes - if not right away, sometime down the line. Going with the assumption that students will in fact buy a home within a 5 year span of graduating, they're probably also looking to satisfy their student loan balances within that time frame. Here is where opportunity lies.

If such a situation exists for you, where student loans need to be paid and you now own a home, there is a way in which you can use your new home to pay off your student loans. How, you might ask? Well, it's simply a matter of using a home equity loan to pay off your student loans, and quite quickly too.

Shortening Student Loan Payoff Through A Home Equity Loan

It's no surprise that most students coming out of college feel that paying off their student loans will be a long haul. Yet, to your delight, as many other students', there is a quicker solution to rid your self of student debt â€" through managing your debt responsibly and considering using a home equity loan. Considering here is mentioned merely because using a home equity loan to pay off your student loans is a two-sided financial action, having both ups and downs, defined pros and cons.

Take Into Mind Home Equity Loan Perks

When looked at and reviewed initially, it would seem that consolidating your student loans into a home equity loan would be a wise decision, one with little to think or worry about. This is so due to how home equity loans work. Since these types of loans essentially use your newly owned property as collateral, banks are able to offer much lower rates than the majority of what private student loans would. This is a saving grace, in more ways than one. Financially, you'll save literally thousands of dollars (via long-term interest payments), not to mention benefiting from added tax perks. And better still, in terms of lowering your total expenditures, home equity loans are tax-deductible.

But, Also, Consider The Pitfalls of Using A Home Equity Loan

It's clear that utilizing a home equity loan to pay off student loan debt is beneficial, yet it is still a bold and weighted move. Know that using a home equity loan isn't 100 percent without caution. Firstly, it's paramount to mention again that your house is used as collateral, which could be to your detriment, especially if rough times unexpectedly pop up, which could cause you to have to default on your mortgage. This could cause you to lose your home, which would be an awful thing to deal with.

And also, factor in that you will lose the deduction that comes with student loan interest, despite gaining a tax deduction for the paid interest on your home equity loan. The ideal thing to do here is to calculate, by crunching numbers, which loan option would best suit you in the long run. Make sure that you understand your options, as well as the ups and downs of home equity loan use to pay off your student loan balances.

by E.S. Cromwell

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