What Is A Christian Home Equity Loan
A potential Christian borrower should ask, "What is a home equity loan," before endeavoring to choose from the large amount of financing options available on the market today. With so much misinformation, talking to a qualified mortgage professional will help a potential borrower clarify their choices and abilities before signing papers for debt that may or may not be suitable for their current situation. Should every homeowner who needs cash seek a second mortgage? Are there multiple kinds of home refinancing instruments that carry with them pros and cons? These are the types of questions can only be adequately answered by a financial professional who has the borrower's best interest in mind.
Writing the questions down before meeting with a mortgage professional always proves beneficial for remembering all the intricacies and points of confusion that may be bothering the borrower. This will ensure that questions will not be forgotten or overlooked during the meeting. What is a home equity loan? For obvious reasons, that question holds the highest priority when meeting with a financial representative. A mortgage planner will answer, "What is a home equity loan," with not just the definition, but also the options available to his client. "Ask of me, and I shall give thee the heathen for thine inheritance, and the uttermost parts of the earth for thy possession." (Psalm 2:8)
Home equity loans are types financing that use the borrower's equity in their home as collateral for the financing. The lender will allow the borrower to finance the full amount of the accrued equity of their property. This means that the borrower does not have any more accrual left when the second mortgage begins. However, this type of financing proves helpful should a homeowner have unforeseen medical bills or education costs that are over of his ability to pay. The answer to: "What is a home equity loan?" in this case would be a lending instrument that takes accrued principal in exchange for instant cash. There are many more questions to ask of the lender. Another pertinent distinction becomes distinguishing financing from a line of credit. Lines of credit are open ended revolving debt that can not exceed the accrued principal amount of the borrower. The homeowner can get money from the line of credit, like a credit card. They can borrower more than one time, as long as they do not exceed the maximum set by the lender.
The length of the repayment period is usually shorter, when asking, "What is a home equity loan, as apposed to the original mortgage?" Mortgages usually run for 15 years, 20 years or 30 years. However, second mortgages rarely exceed 10 years. Length of repayment should always be considered before accruing new debt. Futures are never set in stone, so shorter repayment times are a little easier to plan for, rather than trying to guess what the income of a borrower will be in 30 years. For this reason, lenders feel more comfortable financing a loan or line of credit with a shorter repayment period.
When discussing a second mortgage with a qualified lender may provide more questions than answers. There are closed end and open end home equity loans. Of which is the borrower asking? When asking, "What is a home equity loan?" most borrowers are referring to a closed financing agreement. In a closed end second mortgage, the borrower will get one lump sum of money comparable to the accrued principal that he has earned. The lump sum does not only depend on the amount accrued over the years. The amounts of the financing packages are also dependent on the borrower's credit score, credit history, current income and appraisal value of the home. Why are appraisals necessary when equities, not the home values, are the collateral? By appraising the current market value of the house, the appraiser and the financial representative may deduce that the borrower has even more accrued equity than originally thought. This happens often in cases when the homeowner has been paying mortgage payments on the original loan for over 15 years. The homeowner paid down the principal of the original financing amount, but the house itself has appreciated with the market.
As the borrower ponders that pending debt transaction, the professional lender will further explain, "What is a home equity loan?" by further defining the amortization process. Amortization is just a long word for spreading a big debt over time into tiny payments. The term of a second mortgage can be up to 15 years, though is usually around 10 years or less. If the financing package is not amortized then the lender will owe the whole amount when the 10 years is over. If the borrower does not get specific when seeking the answers to his questions, he might accidentally get into a nonamortized finance package. Doing the research can ward off this mistake, but if the borrower finds himself in a finance package like this, paying monthly as if there were standard payments can ease the financial blow at the end of the loan period.
Unlike a closed end second mortgage, an open end is more like a line of credit or credit card. The borrower can borrow as often and as much as they want as long as it does not exceed the total amount of the appraised value, less any lien currently held on the property. The interest rates are usually variable, unlike the fixed rates of the closed end second mortgages. It would benefit a homeowner to be specific when asking, "What is a home equity loan?" This will lead to only the amount of debt to meet the current financial need.
Christian Home Equity Loan LenderMany people turn to a home equity loan lender to help make ends meet when faced with large or unexpected expenses. The rising cost of a college education, insurmountable medical bills or much needed home improvements are all liabilities that are able to be addressed by contacting a home equity professional to draw credit from the equity in the house or property of the borrower. For most homeowners, their house, property or farm is by far the most expensive asset they have. It makes good sense that this lucrative asset would serve as collateral should they need a large sum of money quickly. Often times, these sorts of loans can preempt major credit damage.
Usually, a home equity loan lender will offer revolving credit using the borrower's house as collateral. The lending institution will typically offer a percentage (usually 75 percent) of the appraised value of the home, and then it will subtract the amount still owed by the borrower on the original note for the house. For example, if the house appraises at $100,000, the initial estimate would be $75,000. If the owners still owe $55,000, then the line of credit could be up to $20,000 (which is $75,000 minus $55,000). The lender will still consider the borrower's income, debts and credit history to determine their ability to make the payments (both principal and interest). In this way, owning a house or property does not necessarily guarantee that the potential borrower will qualify for the funds.
Because a home equity loan lender extends revolving credit, the borrower can draw money out as often as he would like to. There are fixed plans that only allow the borrower to draw money out for a certain amount of time, like 5 years, up to the agreed upon limit amount. The lender will then set a payment plan. The borrower always has the option to pay during the draw period, like all revolving credit (credit and debit cards). After the draw period is over, the borrower either has to pay monthly payments, one lump sum, or she has a certain amount of time to pay the money back to the bank. All the while, the borrower's desire to retain his house or property is the incentive for repaying the borrowed funds.
Accessing the funds during the draw period is accomplished various ways. The home equity loan lender may require an initial sum to be borrowed when the line of credit is established. After that point, the borrower is given either a check book or a debit card to access the line of credit drawn from the equity in their property. There may still be parameters set to regulate the borrower's access to the funds. One of these parameters may be the minimum amount of each transaction (usually $300) or the limit placed on frequency of transactions (only once a month).
Shopping around for the best home equity loan lender is definitely advisable. Rates, terms and closing fees can all vary among financial institution and can dramatically affect the pay off amount or the amount monthly payments. More often than not, credit lines drawn from property value have adjustable interest rates. This means that the interest rate fluctuates according to a specific publically owned index, such as US Treasury bills and the published prime rate. In researching equity lenders, a potential borrower should also research the index commonly used by the financial institution. Not only should the borrower research which index is offering the lowest rates, but also historically how high or low that particular index has been. This will not safeguard against unfavorably high interest rates, but will prepare the borrower for the standard fluctuations for that particular publically owned index.
The costs charged by a home equity loan lender are those previously charged when the borrower initially purchased the property. There is an appraisal fee. This fee covers the price of a state approved property appraiser to visit the house and deduce its fair market value. "LORD, I have loved the habitation of thy house, and the place where thine honour dwelleth." (Psalm 26:8) There is often an application fee. Many times the application fee is not refunded if the applicant is turned down for the line of credit. There are also closing costs, just like those in the home buying process. The closing costs include attorney's fees, property taxes, licensing, title search, mortgage preparation and property insurance. Knowing the estimated closing costs that will be charged by the home equity loan lender will help prepare the borrower to either come up with that money from a third party or deduce the charges from the balance of the line of credit.
A Christian borrower should also consider payment options for the line credit. Many financial institutions provide monthly payment plans, just like standard banking installment loans. However, unlike installment loans a home equity loan lender may not request a set amount every month that includes both principal and the interest accrued. Typically, the borrower can choose to pay interest only or to pay the standard payments. If the borrower chooses to pay only interest, the full principal amount will be required at the end of the loan term. If he decides to pay the payments, the principal percentage might still be too small to pay off the loan by the time that the credit draw period is over. For this reason, many people who have chosen to garner credit collateralized by their property have chosen to pay regular, substantial payments toward the loan, as if it were a standard installment loan. For example, if the bank gave the borrower equity credit for a surgery, the client would then pay toward the loan on a regular schedule as if they were paying the hospital.