Questions to Ask When Applying for a Home Equity Loan

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

With Summer Heating Up, Wouldn’t It Be Nice to Walk Outside and Take a Dip?

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

How to Use the Extra Cash You Save from Refinancing Your Mortgage to Pay Off Your Credit Cards

Mortgage industry experts estimate that over one trillion dollars worth of adjustable mortgages will reset by the end of 2007. Almost half of these will be refinanced into new loans, including fixed mortgages, according to a news report in the Detroit Free Press.
With the cost of a 30-year fixed mortgage averaging 6.37% APR, slightly down .27% from a year ago, many homeowners will be looking to convert their existing three- or five-year teaser rate adjustables into a lower-priced, more predictable fixed-rate mortgage.

Re-financing your adjustable to a 30-year fixed rate can translate into an additional savings of $200 or more a month on a $250,000 mortgage loan payment. This is extra money that can be used to pay-down an existing higher-priced credit card (currently averaging of 12.15% APR nationally.)

Whether your goal is to reduce your monthly payment, cash-out some of the equity in your real estate, or get out of a mortgage product you don’t like, the amount you save by refinancing can provide you with the added income you need to start a savings program or pay-off an existing debt.
Before you decide to refinance, here are some other questions you’ll want to consider:

• When does it make sense to refinance? Decide how long you plan to live in the same house and if a fixed-rate mortgage makes sense. Let your goals influence what kind of mortgage you should get given your unique situation and not necessarily the lowest short-term rate. Always comparison shop for the best rates online.

• Will the added costs of refinancing my ARM offset the potential savings I can achieve by converting to a fixed-rate loan? Before refinancing, research your options and understand how additional points, closing costs, or pre-payment penalties can effect your mortgage loan payment and/or add thousands of dollars to your closing costs. Determine whether spreading these costs over the course of a 30-year fixed loan, along with any ARM to fixed-loan conversion fees if allowable, warrants switching over to a fixed-rate interest loan. While the interest rate may be lower, the savings may outweigh the benefits of your current ARM especially if it has an annual or lifetime cap.

While lowering your mortgage payment can put a few extra bucks back into you pocket, using that money wisely can be the difference between gaining control of your spending habits or going further into debt.

Source: Informa Research Services

Home Remodeling Tips Make Every Day Feel Like Earth Day

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

How Much Home Can You Afford to Buy in Today’s Market?

Although the median price of a home (real estate) continues to drop nationwide, many are finding it difficult to qualify for their first mortgage. A recent survey conducted by the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), shows that just 2% of new and existing homes sold in California during the previous quarter -- with a median average price of $525,000 -- were affordable to those earning a median family income of $56,200.

By contrast, this number was higher in different parts of the country including Indianapolis, where 89% of those with a household income of $65,100 could afford a median priced house of $113,000 (down from $122,000 the previous quarter.) While home inventory levels have increased nationwide, a 30-year fixed mortgage has shown a slight decline - from a 6.37% APR national average in 2006 to a 6.07% APR national average this year.

With buyers looking for more favorable terms, some have turned to 40-year fixed mortgages and interest-only loans to qualify in today’s market. Extending a term from 30 to 40 years can reduce a monthly payment by as much as 10%. While an interest-only loan can result in a savings of 14% or greater depending upon the length of the initial interest-only payment period.

With lenders becoming stricter with their lending guidelines, many still rely on a borrower’s debt-to-income ratio as a measure of one’s ability to repay a loan. For instance, having a debt ratio of 20 points, means your overall housing expenses account for 20% of your gross income. When you include your total monthly debt obligations (e.g., utilities, food, credit card payments, etc.) your overall debts should not exceed 36% of your gross income. Anything greater, may effect your ability to get the loan amount at the rate you want.

To help improve your overall chances of getting the maximum amount you’re entitled to here are three simple steps you can take to keep your debt ratio in check:

Come up with a higher down payment. A higher down payment means you need less to borrow which translates into a lower monthly mortgage payment. This can help to lower your debt ratio.

Lower your outstanding debt. Pay off any credit cards which may have a short payment period remaining (3 to 6 months.) Not only will this help to lower your debt ratio but may increase your FICO score and possibly qualify you for a better rate.

Buy only what you can afford. Estimate the minimum and maximum amount you’re willing to pay for a home. Use a mortgage calculator to determine how much you can afford without going over budget. Don’t forget to include things like your utilities, gas, etc. in your calculations.

Remember, comparison shopping for the best mortgage rate online can help you to properly determine what amount you should be able to qualify for and what type of loan you can afford.

Source: Informa Research Services

How to Refinance Your Next Home Remodeling Project

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

Create an Emergency Fund with These Tips from 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

How to Finance That Special Luxury Gift for the Holidays

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