Why Home Equity Loans are popular

Home Equity Loan - An extremely popular and efficient way to borrow is using roof over one's head as collateral for sizable amounts of credit. To define a few terms, equity is difference between your home's appraised - or fair market - value and your outstanding mortgage balance. A loan refers to amount of money you borrowed from a lender providing you with mortgage. So basically, idea with home equity loans is to borrow against your home's equity as a very effective way to get some things you need at a good price.

Why Home Equity Loans are popular

To be sure, borrowing against value of a home has become increasingly popular. Why, you ask. There are two key reasons for this surge: low interest rates and tax deductibility.

The tax changes that occurred in 1986 have eliminated deductions for most consumer purchases. As a way to get around these changes in tax, consumers began borrowing up on their home value in order to make purchases. Home equity loans thus became a method adopted by homeowners to buy goods and still get a deduction.

For instance, let's say that you bought your home for $95,000 and made a 20 percent down payment of $19,000. To pay remaining $76,000, you then took a first mortgage. On day you closed on your home, you automatically had 20 percent equity. As you pay off principal, you gain equity and your home grows in value.

What Home Refinance does for you

Home Refinance

- Basically, a home refinance is paying off one home loan with another loan. So question is, should you refinance or not? How do you know when it is right for you to get a home refinance mortgage? In other words, when does home refinance make sense for you?

What Home Refinance does for you

Whenever interest rates drop, as they sometimes do, homeowners might have opportunity to save money on their loan payments. As a rule of thumb, lower interest rates translate into lower mortgage loan rates. Home refinance allows you to take advantage of low mortgage rates. With a new loan for a relatively lower interest rate, you can save a few bucks on every monthly payment that you have to make.

The decision-making process of home refinance involves one basic calculation. And that is if your savings from reduced mortgage payments are greater than up-front costs. This then is where basics of home refinance decision lie.

Use a Home Refinance Calculator

Nearly all types of financial calculator require a simple rule of thumb. Often, when we want to calculate our loan finances, we are told to look for a minimum interest rate improvement of, say, two percentage points from our existing mortgage before getting serious about home refinance.

However, when it comes to home refinance mortgage, such rules of thumb can be very misleading. The cut in interest rate which you need in order to come out ahead with your home refinance venture may vary dramatically. More often than not, interest rate cuts depend on how long you plan to hold new mortgage, how many years you have already paid on current mortgage, and increasingly available opportunities for cutting closing costs.