Home Equity Loan – Fixed Rate or Lump Sum Loan

Home equity loan is one type of loan where the homeowner uses whatever equity he has been able to build up in his home as collateral for a loan. Obviously, therefore, this type of loan is secured. However, it is not secured by the home per se but by the owners home equity.

Home Equity

Your home equity is that part of your homes value (in pounds) which is actually yours. To compute your home equity, do the following steps. First of all, find out what your homes current value is. Get the help of an appraiser if you want to get your homes accurate value.

Next, find out what you still owe for your home. To compute this, simply add up your downpayment and payments that have applied to the principal balance (do not include interest rate payments) then subtract the sum from the original amount of the mortgage. The result would be the amount of money you owe your home.

Now, subtract the amount of money that you owe on your home from your homes current value. The result would be your home equity which is, simply speaking, the combination of your downpayment, payments toward the principal and value from property appreciation.

Fixed-Rate or Lump-Sum Home Equity Loan

This is the home equity loan where a bank will loan you an amount that is equal to a certain percentage (the market standard is from 70 to 80%) of your home equity. The actual percentage allocation depends on various factors including the borrowers credit record, payment history, etc. In some cases, a home equity loan may be made for the whole home equity, but such cases are rare. In cases where this happens, the borrower usually has a pristine credit record.

If you are going to get a home equity loan, you will have to apply for the loan, get your home appraised then wait for loan approval. Once approved, your money will be released in one, lump sum.

This type of home equity loan usually has a predetermined loan period. The loan period can vary from a few years to a few decades. The interest rate is also fixed for the whole duration of the loan.

There are also some home equity loans which have a balloon payment structure. In this type of home equity loan, the fixed interest rate is appealingly low. However, the loan period is usually less than 10 years. When the loan period arrives, the borrower will have to make a payment in full.

The Advantages of Lump-Sum, Fixed-Rate Home Equity Loan

The fixed rate ensures the security of your loan. Youll know exactly what your interest rate is every year for the whole of your loan period. You can therefore make financial projections with a high degree of certainty.

Moreover, getting your home equity loan in one big sum is great if you have debts that you wish to pay off. This way, you can deal with all of your debts in one fell swoop therefore immediately making reductions in your overall interest rate payments.

Are you thinking of taking out a personal loan! If the answer is yes then you have to ask yourself some questions first. This will make sure that the loan you choose is the right one to suit your needs.

Below are some of the most common questions you should be asking.

Do I really need a personal loan?
You have to ask yourself if the purchase you are about to buy is necessarily, as you may have this debt for a year or two.

Can I afford to takeout a personal loan?
This is properly the most important question you will have to ask yourself, debt advisers says that a non- mortgage monthly repayment debt should not be anymore than 5% of your net income. This is the total you walkout with after tax, say you take home 2000 a month then the most you should be paying back is about a 100 a month.

How much should I borrow?
Most lenders offer a cheaper APR on a larger loan; each lender has their different levels of interest rates and will change them with accordance to how much you borrow. Sometimes its best to up your loan just a small bit to get the best interest rate.
For example maybe you only want a loan of 4.500 your APR maybe 10.5% but if you go for a 5,000 loan the APR drops to 9.6%. So over all you may end up saving by taking out a bit more just something to watch out for.

Where do I go for a personal loan?
Most people think of the bank first nothing wrong with that, but know there are so many places to look. Everywhere you turn you see adverts for loans including the newspapers, TV, mail, supermarkets and the Internet. The competition at the moment from the lenders is great; they all want your business so there are some great deals on offer. You just have to look for them take your time and you are sure to get the best deal around

Will I be covered if I become ill or unemployed?
Most lenders will have PPI (payment protection Insurance) please check the policy carefully and ask questions. As not all these policies will cover you and they can be expensive, sometime its best to shop around for a different policy.

Can I pay my loan off early?
Yes you can and unbelievably 60% of people do, again check with your lender as some add on penalties for paying off your loan early. Some lenders charge two or three months interest unbelievable but true.

What happens if I get turned down for a loan?
First check why is it because your credit rating is poor or is it because youre asking for too much money. If your income is low you may be asking for too much, if this is the case reduce your request. If its poor credit rating check out why and try and sort that out first, before you reapply

Hopefully these answers will help you, just remember workout what you need the loan for first, then make sure you can afford to make the repayments. Take your time when looking for your personal loan, as there are some great deals out there at the moment.

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