Mortgage Rate News

One of the questions that I have been asked a lot lately is this one:

How likely am I to get a home equity loan?

As with most personal finance questions, it really does depend on your personal situation. And what a mortgage lender is willing to for you (which is increasingly less and less). But there are ways to get a shrewd idea of how likely you are to get approved for a home equity loan.

Mortgage lenders are wary of giving out risky loans again. Gone are the days when you could get a second home mortgage for 90% of your home’s equity. Some mortgage lenders, believing that the real estate market would just continue appreciating at a rapid rate, were offering home equity loan options that amounted to 125% of a home’s available equity.

New expectations for home equity loans

Mortgage lenders now expect a little more in terms of the people they lend money to now. Bad credit home equity loans are becoming scarcer as mortgage lenders want borrowers with less risky credit scores. Many lenders want a credit score of at least 650 (which is lower than what many mortgage lenders will accept for a first home mortgage loan).

Additionally, many mortgage lenders want to make sure there is plenty of equity in the home. With home values dropping, lenders want to make sure that the homes used for collateral aren’t going to suddenly take a nose dive and be worth less than you owe on the home.

Finally, mortgage lenders are becoming more prone to verify income. Many mortgage lenders, who used to fudge income numbers in the past, as well as let some documentation slide, are tightening up requirements.

So, if you have plenty of equity in your home, and if you have sufficient income and good credit, you are likely to get a home equity loan.

Tags: home equity loan, home equity, home mortgage loan, home equity second mortgage,
second mortgage, home values, reader question

Every now and again a reader asks a great question that I feel should be answered for the benefit of all. Today’s question certainly qualifies:

All this talk of recession has me concerned about paying of my credit cards. Should I use a home equity loan to pay them off?

This is a great question, since it comes up so much in terms of debt consolidation. Many ads on TV, despite current worries over the mortgage market, still tout debt consolidation home equity loans as a way to pay off credit card debt.

Advantages to using a home equity loan to pay off credit card debt

There are some advantages to using a home equity loan to pay off credit card debt. There are tax benefits, and the interest is lower than what you are paying on your credit cards. Plus, it helps you get your payments down to one a month, making your personal finances easier to manage. That’s about where the advantages end.

Disadvantages to using a home equity loan to pay off credit cards

There are definite disadvantages to using a home equity loan to pay off credit cards. One of them is the fact that you will have to borrow against your home. This is a tangible asset. You are taking unsecured debt (credit cards) and securing it (with your home). Do you want to risk your home for credit cards?

And, with current mortgage market concerns, you may find that 1. you don’t have as much equity as you thought you did and 2. you could end up in a negative equity situation. Neither of these things is pleasant.

Other options

It is possible to consolidate your debt through other types of loans, or through an agency (watch out for fees, though!). You can also use aggressive debt reduction to pay off your credit cards faster, one by one. Also, if you are very disciplined, you can think about using credit card offers for 0% intro rates to your advantage. But be careful to cancel excess credit cards as you pay them off.

Tags: home equity loan, mortgage loan blog, home mortgage loan, pay off credit cards,
second mortgage, debt consolidation, aggressive debt reduction

Have a mortgage? With an economic slowdown — if not a recession — on the way, it is a good idea to carefully consider where you are at with your mortgage this coming year. You want to be able to continue making mortgage payments, since they will help you protect one of the largest assets you have. Here are 4 mortgage tips that can help you make sure that you can make your mortgage payments this year:

1. Check for resetting mortgage rate. The first thing to do is check for a resetting mortgage rate. If you have a teaser rate on your home mortgage loan, check to see what the new rate is likely to be. You are going to need to prepare to make higher mortgage payments. If your resetting mortgage rate doesn’t happen until next year, it still doesn’t hurt to start preparing now.
2. Make a family budget. This is very important in any circumstance, but especially important in terms of making mortgage payments. You should look at your income and expenses, and figure out what you need to do to limit expenses. The time to get your finances in order is NOW, before you are forced to. Make sure that your mortgage payments are included as one of the first priotity expenditures.
3. Contact your mortgage lender. If you think that making your mortgage payments is going to be a problem, contact your mortgage lender. There are programs available to help you restructure your home mortgage loan so that you can make your payments. Letting your mortgage lender know ahead of time can help you increase your chances of finding a solution.
4. Refinance if you can. If you have an adjustable rate mortgage, or if resetting mortgage rates have you worried, try to refinance. Refinancing to a fixed rate can help you save money over the life of your home mortgage loan. Additionally, it will make budgeting your mortgage payments much easier.

Tags: mortgage tips, mortgage lenders, home mortgage loan, mortgage blog,
mortgage payments, recession, family budget