Home Equity Loans: HELOCs Vs Credit Cards
Getting a credit card is easy, but getting out of the debt which they sometimes get us into is another thing. I’m sure many of us have received a call in one time or another about a bank offering us an easy way of getting a credit card. This line of credit tempts us into spending money which we don’t have which is basically a hole which gets deeper every time we use the credit card.
There are many ways of getting a line of credit. Having a credit card is certainly great when we fail to bring along cash during a run to the grocery store or eating outside. Home equity lines of credit or HELOCs is another way of getting a credit line. These maybe similar to getting a credit card but there are certain differences on how interests are computed and payments could be made for example.
Homeowners having troubles paying their credit cards may use value invested in their homes as an alternative way of paying credit card debts. This could also be used as a ready line of credit which a homeowner could withdraw anytime much like a credit card would do.
Advantages of HELOCs
Lump sum payment
HELOCs offer homeowners the option of getting larger amounts of cash compared to credit cards. For those planning to establish a business, a home equity loan could fund larger projects. For those who may have credit card debts, taking out a HELOC could help you pay outstanding debts and stretch your payments with fixed interest rates.
Payment options
Credit card payments are made monthly with interest rates being applied if a holder does not make payments within the given period. Payments made on purchases are payable within a pre agreed period of time, usually a year. HELOCs on the other hand have longer payment periods which could run to as much as 25 years. A minimum monthly payment is first applied during the HELOCs early years; borrowers are required to make a monthly payment which is often based on the loans interest.
Interest rates
Any type of loan or credit requires borrowers to subject themselves to certain terms and conditions. Credit card interest rates seem to increase monthly, a huge risk if you’re not able to make those monthly payments. HELOCs however have comparatively lower interest rates than credit cards.
Reposted by REOProteams
For more information on the latest and hottest deals or how we at REOProteams.com could help you please email us at info@REOproteams.com or visit us at www.reoproteams.com or LVbargainproperties.com
Home Equity Line of Credit (HELOC)
Home Equity Line of Credit or HELOC is a type of credit which uses a lenders home as collateral. A maximum credit loan is determined where the borrower may draw funds from during the remainder of the contract. There are no limits on how much or how often a borrower could withdraw funds from the maximum amount of credit.
A credit line is established using the homes equity as basis for the maximum credit available to the borrower. Once a balance is established, the minimum monthly payment is computed. HELOCs allow a great deal of flexibility in terms of repaying the loan. Monthly payments are easy and could be done with as little as paying the minimum payment required. HELOC contracts usuallycover as little to 5 years to a maximum of 25 years before loans are fully paid.
Stages in HELOC applications:
- Applying for HELOC. Credits are based on the equity available in a borrower’s home. In order for homeowners to avail of HELOCS, the remaining balance on the home is computed against the homes current market value. Other factors are also considered in the final computation of the borrower’s credit line. Credit history and the buyer’s credit scores also play an important role in determining maximum credit.
- Loan approval and setting of credit line. Standard bank procedures in HELOC applications include an actual check on the homes market value. The appraised value is then determined and the borrowers outstanding balance is deducted from the home’s value. The remaining amount is then determined but only a maximum of around 85 percent is awarded as the borrower’s credit line.
- Draw period. Once the credit line is established the draw period is determined. This period covers the amount of years where the borrower could subtract funds from the credit line. These funds are readily available for withdrawal during the draw period in any amount not exceeding the borrower’s credit limit. After a borrower draws funds from the credit line, a bill is sent displaying the minimum amount to be paid. Interest rates depend on pre-agreed credit terms and payments could be done on based on the interest only.
- Repayment. After the initial draw period, HELOCs are then subjected to a repayment period. In this period, borrowers are no longer allowed to make further withdrawals even when the credit line has not been exhausted. Only the amount drawn together with the interest is paid by the borrower over the agreed repayment period.
Reverse Mortgages Explained
One of the hardest hit sectors by today’s economic difficulties are the senior population and retirees. Reverse mortgages aims to give older Americans better financial security. At a time when healthcare is still being debated finding ways to help senior Americans is of the utmost importance.
With traditional Second Mortgages or HELOC’s you should first pre-qualify with their requirements. Requirements include a sufficient income to debt ratio and making monthly mortgage payments. For senior and retired Americans the prospect of making payments is just not possible with their pension.
What are Reverse Mortgages?
Reverse mortgages or Lifetime mortgages are loans designed for seniors that let them convert a portion of their home equity into cash. The funds may be released as one lump sum or multiple payments. Equity built through years of mortgage payments can be paid back to you. Unlike Home Equity Loans, HELOC’s or Second Mortgages no repayment is required until the borrower no longer use the home as a residence. Other instances includes when the owner dies, the home is sold or the owner leaves into aged care.
Reverse Mortgage Versus HELOC’s
With traditional Second Mortgages or HELOC’s you should first pre-qualify with their requirements. Requirements include a sufficient income to debt ratio and making monthly mortgage payments. For senior and retired Americans the prospect of making payments is just not possible with their pension.
Reverse Mortgages however does not require you to pay monthly mortgages. This loan is available for seniors and retirees with or without a stable source of income. The amount available depends on your age, current interest rates and most of all the market value for your home.
To qualify for a Reverse Mortgage loan one must be eligible with the following requirements:
- Borrowers must be at least 62 years of age
- The properties must be occupied as a primary residence
- The Borrower must attend an information counseling session affiliated with the Federal Housing Association (FHA)
- Property must meet FHA standards, appraisal is done
- The owner must maintain the property and pay all taxes and insurance
Disadvantages of Reverse Mortgage Loans
The main drawback for reverse mortgage loans is its high interest rates. Interest is based on the market value of the home and not the amount loaned. Reverse mortgage loans are only available for seniors and not the general population. Accrued interest payments are not tax-deductible. Expenses can only be tax-deducted once the loan is paid in full. Leaving something for your heirs may prove difficult as loans grow larger with time.
Frequently Asked Questions:
What happens when the borrower dies?
When a borrower dies before maturity of a loan the residence is sold and all proceeds pay for the loans and fees. Any remaining equity left after the sale is distributed to your heirs. Your heirs may also have the option of getting a mortgage on the property but paying the interest rates and costs must first be cleared.
What happens when the borrower outlives the loan?
If the term for the loan matures and the borrower continues to reside in the home and pays all taxes and insurance, they cannot be forced to leave.
Many senior Americans are faced with rising costs of healthcare and prospect of foreclosures. With high unemployment rates and the economic downturn today, prospects of getting a job are difficult if not bleak. The rising cost of living has left many senior Americans little options with their pensions. Taking out a loan is certainly not the best alternative for helping the elder population. But the decision in making a reverse mortgage maybe the only option for many senior Americans to live life with grace.
Reported by REOProteams
For more information on the latest and hottest deals or how we at REOProteams.com could help you please email us at info@REOproteams.com or visit us at www.reoproteams.com or LVbargainproperties.com
-
Archives
- March 2010 (8)
- February 2010 (10)
- January 2010 (7)
- December 2009 (11)
- November 2009 (17)
- October 2009 (9)
-
Categories
-
RSS
Entries RSS
Comments RSS
