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Question: How does a home equity loan work?

(Posted by: Hawk on 2007-01-22 16:20:06)

I am looking to make some home improvements (new windows, kitchen, sump pump, etc.) but need money to do it. Thanks for the help!

Posted by: Mariko on 2007-01-22, 16:24:41

If you have equity in your house then you can take a home equity loan based on the value of your house and how much you owe on it. Usually this loan is a variable rate loan that depends on the loan index at the time. This loan is tax deductible.

Posted by: CctbOh on 2007-01-22, 16:28:09

It's like a large checking account. I needed a loan for home improvements and got a home equity line of credit. I had to take out at least $20,000 even though I only needed half of that. They sent me checks to write on my home equity loan so when my contractor was done I wrote out a check from that account and they send me a statement every month showing how much I have left to pay back.. The money is there if I need it but I only have to pay back the amount I take out of it.

Posted by: Samm on 2007-01-22, 16:29:26

You own a house that has a $200,000. Mortgage but thanks to increased value it is appraised at $400,00.00. This gives you potential for a $200,000. equity line. Some equity lines are credit cards with the equity as the security. So you charge the improvements to the house and make payments. Or pay it off ASAP. Check with your bank and look for a GOOD rate.

Posted by: Frank - Wachovia Banker on 2007-01-23, 17:23:01

Hawk, Use the following formula to determine your functional equity: (Value of Home X 0.9) - First Mortgage Balance Now take your total monthly debt (include taxes and insurance) plus 1% of whatever you want to borrow. Divide this figure in half. If it is under 50% of your total income, then you are golden. If you have a good credit score (over 700), the bank may not need to verify your income. The interest that you pay on line over the course of the year could potentially be tax deductible if you itemize. The payment on these lines are usually interest only and any contribution you make over your finance charges go towards paying down the loan principal. The rate is always based on the Prime rate which is set by the Wall Street Journal on the 24th of every month. This rate is 3% above the Federal Funds rate which is currently at 5.25%. Like any other mortgage, there are closing costs associated with this line of credit. Usually they include state taxes, recording fees and title protection policies. There are a couple of ways to pay for these. You can pay them at closing, you can put the costs on the line or you can have the bank pay them for you. If you pay for your own closing costs, your interest rate is usually lower than if you have the bank pay them. As always you can call me at the branch. 813-681-2866 Good Luck! Frank