Using Equity to Secure a Loan: Home Equity Line of Credit vs. Traditional Second Mortgage

Homeowners in need of financing for education, medical bills, renovations or other investments often consider using their home as collateral in securing credit. Two ways to do this are secured lines of credit and traditional second mortgages.

Home Equity Line of Credit Defined

A home equity line of credit is a revolving credit account secured against the homeowner’s property. The lender uses a formula to determine how much credit they can extend to the homeowner, often by taking a percentage of the home’s value and subtracting the amount still owing on the mortgage.

Applicants usually undergo a credit check and must show proof of income, assets and liabilities to prove to the lender their ability to repay the loan. Home equity lines of credit usually have an end date, at which time the borrower might apply for a loan renewal.

Tricks and Traps to Avoid When Securing a Home Equity Line of Credit

While most lenders don’t intend to dupe borrowers, there can be hidden fees and conditions involved with a home equity line of credit. It is up to the borrower to read the fine print and ensure they understand all of the terms of the loan before borrowing. Watch for these tricks and traps:

  1. An introductory interest rate- Understand how the interest rates work over the term of the loan. An introductory rate may be attractively low, but could increase six months or a year into the term. Also watch for differing interest rates on different types of transactions, ie.: purchases vs. cash advances.
  2. Penalties for late payments- No one plans on missing a minimum payment, but it is important to understand what will happen if this occurs. Could interest rates increase? Could the account be frozen?
  3. Costs to set up the account- Watch for closing costs, home appraisal fees, application fees, and other expenses that could increase the overall cost of borrowing. Compare the cost of borrowing among several different lenders.

The Traditional Second Mortgage Defined

Where the home equity line of credit is a revolving account, a traditional second mortgage is a fixed-term loan of a specific amount of money, secured against the value of the home. The monthly or bi-weekly payments are usually the same amount over the term of repayment, compared to line of credit minimum payments which fluctuate depending on the amount owing at any given time.

A second mortgage might be the right choice for a homeowner in need of a predetermined amount of money upfront, whereas a home equity line of credit allows for more flexible borrowing. Borrowers should know before securing the loan exactly how they plan to make the payments each month. If they were laid off, could they still make the payments? Would it be manageable if they were off sick for two weeks?

Loan Repayment Tips

Having a plan to repay any debt is crucial in deciding if one can afford to borrow. Even when a lender has pre-approved a certain amount, it is up to the borrower to stop and think, “What is the worst thing that could happen… and if it did, could I still afford these payments?”

It is important for anyone with a loan secured against their home to have disability insurance. Many have life insurance, but fail to pay the extra monthly premium for a policy that would allow them to take care of their responsibilities if they become disabled or sick.

Ensure the loan has flexible repayment terms. Most lines of credit allow the borrower to make larger payments when they are able. However, second mortgages may not. Make sure the terms include flexible repayment terms, including the ability to make lump sum payments or increase monthly payments when possible.

How to obtain payday loans with bad credit?

There are a lot of companies are out there that are providing the loans with higher interest. If you are looking for the loan, then it would be quite a difficult task for you because you will have to require a lot of things. Before applying for the loans, you must check the eligibility criteria and check documents. Are you familiar with CBL or credit score? It is one of the most important things. Well, it is one of the most important things that represent the complete report of your previous loans.

If you have paid the previous loan on the exact date, then you can obtain the loan without any additional charges. If you are a beginner, then it would be quite a difficult task for you. Are you looking for the alternative option? Well, here we are talking about payday loans are getting the hype.

It is one of the best Facility where you can grab loan within 24 hours. The best thing is that it doesn’t require any kind of CBL score or credit history. They are paying the loans without any additional interest rates.  You should keep reading the article and understand how to obtain payday loans without struggling much.

Collect Important Information

No doubt, it is one of the easy ways from where you can obtain thousands of dollars in the fraction of seconds. You can pay the loans in the easy installments only. Want to apply for payday loans? You don’t have required any assistance of professionals because you can apply via online commercial websites.

Before applying for the loan, you will have to collect the essential documents. First of all, you must obtain the recent bank statements that show how much you can pay.

Gather identification proof

Do you have all identification proofs? It is one of the most important steps, where you will have to collect the essential documents. After that, you should upload the documents into the account. Most of the time, you must collect a lot of ID’s like as driver licenses or identification card as well.

Check out the other Financial Details

Now, you should check out the financial information. If you haven’t all the financial details, then you should get from the bank. For instance, you should collect the bank statements, income proof and papers on land as well.

Grab the Blank Check

It isn’t essential documents, but most of the bank always requires the blank check. Before applying for the loans, you should grab the checkbook from the bank and then you should grab the blank check. The check must be blank so that you will have to fill the essential information in it. After that, you should apply for the loan without any hesitation.

Get the Payday Loan

So do you have all the necessary details? If you want the payday loans, then you will have to find a reputed company from the phone book or online. Most of the companies are providing the online payday loans. You will have to submit the application with necessary information’s. Make sure that, you are uploading the essential documents with them. After uploading the essential documents, you can obtain the money within 24 hours that is a great thing.

Check out the Reputed Company

No doubt, there are a lot of scammers are out there. Thus, you will have to choose the perfect one. Before applying for the loan, you should check out a lot of essential details like reviews, ratings, and experience of the company if you don’t find any kind of reviews and ratings then you should go for another company. Also, you should check out the reputation of the company.

  • Most of the companies have thousands of complaints against companies. If you are worried about the company, then you should seek the help from professionals.

Discuss the customer care about Fee and interest rate

Before applying for the loans, you should talk with customer care. After that, you should obtain the information about additional Fee and interest rates as well. It is one of the most important steps where you will have to pay attention to every task. Most of the companies are charging higher interest rates and Application fee as well. You should discuss everything regarding documents, fees and interest rate as well.

Check out the due date

You will have to know complete information about payday loans. After getting the loans amount, you should check out the due date of loans because most of the companies are providing installments on the First week of the month.