Home Equity Loan or Credit Card - Which is the Better Option?

Are you considering taking out a little extra money to make some home improvements? Or, perhaps you need some cash to help pay for someone's college or for some other important financial venture. Regardless of your reasons, you have two major options available for getting the money you need: you can take out a home equity loan or you can use a credit card. In order to determine which of these two options is best for you, there are many things you should take into consideration.

The Pros and Cons of an Equity Loan

When it comes to a home equity loan, there are many pros and cons for you to consider. Perhaps the biggest benefit to obtaining a home equity loan is the fact that the interest rate on home equity loans is generally much lower than the interest rate on credit cards. Therefore, depending upon the amount you borrow, how long it takes to pay back and the difference in the interest rates, you could potentially save hundreds or even thousands of dollars when you choose a home equity loan over using a credit card.

Perhaps the biggest disadvantage to obtaining a home equity loan rather than using a credit card is the fact that your home is put up for collateral. Essentially, taking out a home equity loan equates to taking out a second mortgage, which means your home can be foreclosed upon if you fail to repay your equity loan in the agreed upon manner. With a credit card, on the other hand, there is no collateral on the loan. While you still risk ruining your credit rating if you fail to pay the loan back properly, you significantly reduce your risks of losing your personal belongings when you use a credit card to obtain the funds you need.

The Pros and Cons of Using a Credit Card

The biggest con against using a credit card in order to give yourself a major loan is the fact that credit cards tend to have a high interest rate. If you take advantage of special promotional offers and if you plan your repayment schedule effectively, however, you can potentially enjoy a lower interest rate when you use your credit card.

Another perk to using a credit card rather than a home equity loan is the fact that you do not have to deal with the paperwork involved with getting a home equity loan. As such, you can obtain the funds much more quickly if you use a credit card that you already have. In addition, you don't have to worry about paying to get your home appraised or other costs that are involved with getting a home equity loan. At the same time, it is important to note that there may be extra fees associated with obtaining funds through your credit card as well, so be certain to learn more about all of the fees involved before you borrow cash from your plastic.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of on-line home appraisals and offers a nationwide personalized instant informational report about home appraisal. For more information, please visit .
http://www.electronicappraiser.com.

Understanding Jumbo Mortgage Loans

Are you considering obtaining a jumbo mortgage loan in order to purchase the home of your dreams? If so, you may find that obtaining a jumbo mortgage in today's market is a bit difficult. Yet, only a year ago, jumbo mortgages were a relatively common type of mortgage loan for future homeowners to use when buying the home of their dreams.

What is a Jumbo Mortgage?

Put simply, a jumbo mortgage is a type of mortgage loan that exceeds the industry standard for a conventional loan. The amount of a mortgage loan that is considered to be conventional is determined by Freddie Mac and Fannie Mae and any loan that exceeds this amount is considered to be a jumbo mortgage. The amount that is considered to be conventional changes each year and certain areas have higher set limits than others. The U.S. Virgin Islands, Hawaii, Alaska and Guam are all areas that have a higher limit placed on conventional loan amounts.

What are the Risks of a Jumbo Mortgage Loan?

Obtaining a jumbo mortgage loan is actually more of a risk for the lender than it is for the buyer in many ways. Even if you have obtained an appraisal that demonstrates the value of the property you wish to purchase, selling one of these homes to the mainstream homebuyer can prove to be difficult. In other words, if you were to default on your loan and the lender were to repossess the home, the lender will likely have more difficulty selling your home because there aren't many buyers in the market capable of paying for a luxury home. In addition, the value of a luxury home can be quite subjective and can change quickly. For that reason, many lenders require at least two appraisal before they will approve a jumbo mortgage loans.

What are the Drawbacks to Getting a Jumbo Mortgage Loan?

Although a jumbo mortgage loan is not necessarily riskier for the buyer, there are drawbacks to getting this type of loan. Namely, jumbo mortgage loans tend to have higher interest rates than conventional mortgage loans. The increase in the interest rate depends greatly on the current market trends, but generally ranges anywhere from 0.25 to 0.5%.

Another drawback to applying for a jumbo mortgage loan is that you may have difficult obtaining the loan. Just as recently as a year ago, jumbo loans were a fairly common phenomenon because the market was stronger and the prices on homes were increasing. With the current status of the market, however, the prices on homes have fallen and lenders have become less willing to take a risk on a jumbo mortgage. Therefore, unless you are getting a great deal on a home with a high appraised value and unless you have an excellent credit history, you may find it nearly impossible to get a jumbo mortgage loan.

About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of on-line home appraisals and offers a nationwide personalized instant informational report about home appraisal. For more information, please visit .
http://www.electronicappraiser.com.

Tapping Into Your Home’s Equity

According to research conducted by the Federal Reserve, the best investment you can make is purchasing a home. Unlike the stock market, which can be quite volatile, the investment you make into your home is relatively risk free and generally provides a reliable return of the money invested. In fact, the Federal Reserve claims that those homeowners that sold their homes during the last five years made a net capital gain of $25,000 or more. At the same time, if you want to take advantage of this net capital gain, you don’t actually have to sell your home. In fact, you can tap into that equity in a number of different ways.

Refinancing Your Mortgage

One way to take advantage of the equity in your home is to take out a refinancing mortgage. When you refinance your mortgage, you actually replace the old mortgage with a new one. When replacing the old one, however, you borrow more than what you still owed on the home. This way, you can use the extra money in any way you please. If you managed to get a lower interest rate on your refinanced mortgage, you can potentially save yourself a little money as well.

Taking Out a Home Equity Loan

When you take out a home equity loan, you don’t replace the old loan. Rather, you still carry the other mortgage loan and you simply add another home loan on top of it. For this reason, home equity loans are often referred to as second mortgages. Taking out a home equity loan requires less paperwork than refinancing, but the interest rates tend to be several points higher than refinanced mortgage rates.

Preparing for a Rainy Day with a Home Equity Line of Credit

Just as with a home equity loan, a home equity line of credit is a type of loan that is in addition to your mortgage. This type of loan is different, however, in that you are extended a line of credit in the same way you receive a line of credit with a credit card. In this way, you can borrow against the line of credit as you need to, but you can also keep your balance at $0 if you don’t need to borrow against your equity. This type of equity loan typically has few up-front costs and you can usually get approved for one of these loans rather quickly. In addition, you don’t have to worry about paying interest until you actually borrow against the credit line.

If you need to tap into the equity that you have built in your home, be sure to explore your options and select the one that is right for you. At the same time, avoid taking out a home equity loan or refinancing your home for frivolous expenses. After all, your home is on the line when you refinance or take out a home equity loan and you want to be certain you can afford to pay the loan back.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

What is PMI?

You have probably seen the initials PMI when you have applied for a home loan. If you are paying PMI, also known as Private Mortgage Insurance, it is probably because you put less than 20% down on your home mortgage.

PMI can be defined as an insurance that is required to protect the lender in the event the borrower defaults on their loan. PMI is paid for by the borrower and is included in each monthly mortgage payment. Private mortgage-insurance companies offer the insurance to lenders, who then are able to accept lower down payments than they would normally accept. The insurance then provides what the equity of a higher down payment would provide to cover a lender's losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.

The cost of PMI increases as your down payment decreases. For example: The cost of PMI on a 10% down payment is less than the cost of PMI on a 5% down payment. Your PMI premium is normally added to your monthly mortgage payment.

The decision on when to cancel the private insurance coverage does not depend solely on the amount of equity in you home. The final say on terminating a private mortgage-insurance policy is reserved jointly for the lender and any investor who may have purchased an interest in the mortgage. However, in most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value. Some lenders may require that you pay PMI for one or two years before you may apply to remove it.

To cancel the PMI on your loan, you must contact your lender. In most cases, an appraisal will be required to determine the value of your property. You will probably also be required to pay for the cost of this appraisal. Another way of canceling the PMI on your loan is to refinance and to get a new loan without PMI.

At one time, homeowners didn’t know they had the option of canceling their PMI. Then, in 1998, a new federal law called The Homeowner’s Protection Act (HPA) required lenders or servicers to provide certain disclosures concerning PMI for loans secured by the consumer's primary residence obtained on or after July 29, 1999.

In the past, most lenders honored consumers' requests to drop PMI coverage if their loan balance was paid down to 80 percent of the property value and they had a good payment history. However, consumers were responsible for requesting cancellation and many consumers were not aware of this possibility. Consumers had to keep track of their loan balance to know if they had enough equity and they had to request that the lender discontinue requiring PMI coverage. In many cases, people failed to make this request even after they became eligible, and they paid unnecessary premiums ranging from $250 to $1,200 per year for several years. With the new law, both consumers and lenders share responsibility for how long PMI coverage is required.


Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Greg Sullivan is the President of www.electronicappraiser.com, a leading provider of home appraisals offering a nationwide personalized instant home appraisal service. For more information, please visit www.electronicappraiser.com.