It can provide you with additional finance for any purpose you may think of by securing a loan for you. This will provide you with competitive interest rates and low monthly payments so you can enjoy cheap financing. In order to understand how home equity loans work, you need to be familiar with certain concepts. Mainly, you should know what equity is and how it is calculated. Then, you’ll be able to understand why home equity loans provide such benefits and the risk that requesting this kind of loans implies.

Defining Equity

Equity is the difference between the value of an asset and the amount of debt that it secures. It is the remaining value of a property when the property’s value exceeds the amount of debt that the asset guarantees. This equity can be used to secure another loan. Just like a home is used as collateral for a home loan, the same property (specifically its equity) can be used as collateral for a home equity loan or line of credit.

It is necessary to note that the value of the property to take into account is the appraised value of the asset (the current value) and not the purchase price of the property. The value that is taken into account is the amount of money you could get if you were to sell the property in the market.

Calculating Equity

In order to calculate equity you need to subtract any mortgages or liens hold against the property to the appraised value of the asset. For example: If you own a house worth $100,000 which has a mortgage loan with $60,000 of outstanding debt, the equity on your home is equivalent to $40,000. This remaining amount can be used to secure another loan.

Bear in mind that mortgages are not the only debts that can be subtracting value from your property, outstanding home equity loans, other liens and judicial embargos can reduce the amount of usable value of the asset. In order to correctly calculate the equity you need to consider all the above when subtracting the overall debt held against the property.

Benefits of Home Equity

Home equity loans provide low interest rate financing compared to unsecured loans. The interest rate charged for home equity loans rarely exceeds 12% while the interest rate charged for unsecured loans can usually reach 18%, 20% or even more. The secured nature of home equity loans keeps interest rates low by reducing the risk involved in the lending process.

Home equity loans also offer higher loan amounts and longer repayment programs. This combination provides great flexibility as you can request significant amounts and obtain low monthly payments by extending the loan length. When it comes to unsecured loans not only you can’t obtain high loan amount but you can’t repay it throughout long repayment programs either.

Risk of Repossession

The main concern that equity loans imply is that given that the loan is secured with your home, if you default on the loan you risk repossession of the property. Thus, whenever considering requesting a home equity loan, you should make sure that you’ll be able to repay the loan and that you put away some savings for unexpected expenses that otherwise may compromise loan repayment.

With the condo market apparently showing signs of slowing down, a systematic strategy for reviving activity is having affordable condo mortgage financing available to prospective buyers. An issue for many homeowners is in managing monthly income and expenses, or “cash flow” in general. Income fluctuates every month and unforeseen expenses come up when least anticipated. For many people, mortgage payment comprises the largest monthly expense, and also the least flexible. Most buyers desire for luxury and they want it with an affordable monthly mortgage payment.

A specific type of condo mortgage financing—option adjustable-rate mortgage (option ARM)—has been devised as an alternative condo mortgage product which, if fully understood can serve as a valuable tool to acquire a property that otherwise would be very difficult to acquire. The product has been designed to give condo owners greater control over the mortgage payment.

Recently there has been a substantial transaction activity from buyers who wish to buy condo properties in Miami within the $200,000 price range. Unfortunately spending $200,000 in most cases will not produce a property which meets even the most basic standards of a select group of buyers.

Benefits of Option ARM

The benefits of option ARM condo mortgage financing is discussed here in a general manner. Option ARM, if understood, is considered to be a viable solution for buyers to obtain the condo properties through condo mortgage financing. In particular, the particular type of option ARM elaborated here is also called “short term option ARM mortgage.” Do not confuse “short term” with high payment, as it normally does for mortgage. “Short Term” here implies lowest interest rate, as the prevailing introductory rate on a one month option ARM is 1.75%.

Let us show a sample calculation using the said condo mortgage financing scheme. If a buyer considers about purchasing, say a $350,000 Miami condo and were to opt for a one month option ARM Mortgage, and place a $25,000 down payment, the monthly mortgage payment would turn out to be $1156. A $200,000 condo mortgage payment would turn out to be a mere $710 per month.

Indeed, with the simple example above, it appears that this mode of condo mortgage financing has the potential of making one’s condo acquisition an affordable investment.

Risks Involved With Option ARM

Simply, the risk of selecting option ARM for condo mortgage financing is the possibility that a negative amortization could occur. This implies that if borrowers opt to only make minimum payments for an extended period of time, they may encounter the chance that they will owe more at the end of the second or third year than they did on the first year of amortization.

If mortgage payments are suddenly higher, the most probable aspect to blame would be the ever-rising mortgage interest rates. The reason is that since 2004 the Federal Reserve Board has raised the fed-funds rate, which influences mortgage interest rates, 17 times.

In recent years, many people have taken advantage of near-record-low interest rates while scooping for real estate properties. In order to make mortgage payments even lower, many signed up for variable-rate home mortgage refinancing options.

One of the benefits of variable is that you get an extra-low interest rate for the first few years of the loan, and then, often every year, it gets reset to reflect the actual market movements in interest rates. For a “5-1” variable-rate mortgage scheme, the loan is fixed at a low introductory rate for five years and then begins floating in relation to interest rates each year after that. However, if the market interest rates surge up, the rate of your own will consequently rise, albeit caps for regulating rates from rising too much are in place.

The risk is that one could end up paying 10% or more on a home mortgage refinancing in later years. This is not quite apparent in fixed-rate home mortgage refinancing wherein one’s loan will be locked at a rate, say 6.25%, until the whole loan is paid. The risk is not at all senseless—that is if you plan to leave the home after a few years, variable-rate home mortgage refinancing can make a lot of sense. You get an extra-low rate initially, and you are not likely to be around if and when rates escalate.

Not everyone is fortunate enough to figure out such a trick. Some are blinded by the chase of the cheapest rates out there, grabbing variable-rate mortgages for the really low introductory rates that these offer despite planning to stay in their new home. So now that the tide seems to be turning, and rates are rising, the potential heartache for a lot of people is looming. According to a report from ACORN, the national community advocacy group, about 75% of subprime home loans were variable-rate mortgages.

Many people have opted for even riskier home loans than ordinary variable-rate mortgages. Some signed up for interest-only loans and negative-amortization loans, and according to a Los Angeles Times article, "substantial numbers of borrowers using interest-only and payment-option loans have modest incomes and could already be stretched financially."

Refinancing your mortgage can save you money, get your hands on cash, and help you take control of your finances, if done correctly. There are a number of common mistakes homeowners make when refinancing their mortgages that cost them thousands of dollars. Here are the basics of refinancing your home loan to help you avoid costly mistakes.

Refinancing to Save Money

If your financial situation has improved and you qualify for a better interest rate than you did when you purchased your home, you could save money by qualifying for a lower interest rate. This lower interest rate could also reduce your monthly payment amount; however, there are ways to lower your payment even you cannot qualify for a lower interest rate. If you purchased your home with a risky Adjustable Rate Mortgage (ARM) or have Private Mortgage Insurance, refinancing to a fixed rate loan could ease your peace of mind and help you lose the Private Mortgage Insurance.

Refinance and Get Cash

Refinancing your primary mortgage and taking cash back is generally more affordable than other home equity options. You will qualify for a better interest rate refinancing than you will with a second mortgage or home equity line of credit. To borrow against equity when refinancing, you simply borrow more than you owe on your existing mortgage and will receive the cash back at closing.

Consolidate Your Debt

Mortgage refinancing is a convenient way to consolidate your higher interest debts into one payment. By taking cash back when refinancing you can pay off your other debts and have just one payment. When you refinance to consolidate your bills it is important to understand that refinancing does not eliminate your debt; consolidating only restructures your debts, making them easier to pay back.

You can learn more about refinancing your mortgage while avoiding costly mistakes by registering for a free mortgage guidebook.

People across the nation are searching for alternative financing solutions for home refinancing, because more likely than not they are already locked into a great rate for thirty years. Take a look at the mortgage refinance loan's little brother, the second mortgage. This junior loan is usually smaller than the older, more senior mortgage loan, but it is more flexible and it may not be as difficult to deal with. Examine the benefits of the younger more agile second mortgage and you may reconsider refinancing your 1st mortgage.

# Second mortgages require no private mortgage insurance (pmi).

# You can borrow up to 125% of the appraised value of your home.

# 2nd Mortgage loans cohesively subordinate to your existing mortgage.

# Flexible credit lines allow you to access money any time.

# Home equity lines of credit can be converted to a fixed rate term.

Second mortgage loans are great financing tools for getting cash out to finance, pool construction, debt consolidation, and even purchase a 2nd home. According to a recent study by Harvard University's Joint Center for Housing Studies those who own second homes are more likely to reduce spending on their primary residence relative to their income than those who do not own second homes. This Harvard study notes "compelling evidence that the choice to adjust (housing) consumption by adding a second home rather than by increasing the value of the primary residence must lower demand elasticities for primary homes among second-home owners even more."

Whatever kind of loan you choose when looking for cash out using you home, make sure that you understand how the loan works. You need to know how the interest is being calculated and if you you have a pre-penalty for early pay off. Above all, take the money you get from the home equity loan and invest it wisely.

If you are in the process of refinancing your home loan with your bank, you will overpay for your new loan no matter where you bank. There are pros and cons with any type of mortgage lender and if you aren’t careful you will pay too much. Here are several reasons why you should never take out a mortgage loan from your bank.

Banks make the majority of their profit by selling your home loan to the secondary mortgage market. Banks are not required to disclose their mark up on your mortgage loan. The mortgage you take out from the bank is funded entirely by the bank and pooled together with their other loans. Once you close on the mortgage the bank will turn around and sell your loan to secondary mortgage market collecting their profit. No one but the bank knows how much they are profiting by selling your loan; the more they overcharge you for the loan, the more the bank will profit.

Pros of Bank Funded Mortgages

• Bank Loans are Convenient
• Bankers are Less Likely to Use Pressure Sales Tactics
• You May Already Have a Relationship with Your Banker

Cons of Bank Funded Mortgages

• Limited Number of Loan Products to Choose From
• No Room for Negotiation on Your Interest Rate
• Interest Rates Are Always Higher
• Banks Are Not Willing to Negotiate Lender Fees and Closing Costs
• Banks are Exempt from Disclosure Rules Provided by the RESPA Act

As you can see the cons of bank funded mortgage loans clearly outweigh and advantages. If you are not familiar with RESPA, it is the Real Estate Settlement Procedures Act that protects borrowers in the United Sates by setting guidelines for disclosure. Banks are exempt from the disclosure rules required of other mortgage lenders. Do you really trust your banker not to take advantage of you?

To learn more about your mortgage options and common mistakes to avoid, register for a free mortgage guidebook.

To get your free mortgage guidebook visit RefiAdvisor.com using the link below.

As current market trends present lower rates, people consider mortgage refinancing their home loans in order to saving thousands of dollars in interests. This article gives a brief overview that allows one to determine whether mortgage refinance is a suitable decision. Important information is explained regarding the process of mortgage refinancing as well as tips on how to choose the right lenders and loan options. Mortgage refinance means getting a loan in order to pay off an outstanding housing loan. Both loans will be secured with the same asset thus the repayment is done immediately and the loan amount can’t be used for other purposes, unless of course there is cash remaining after the previous loan is cancelled. The new loan can be obtained from the same lending institution or from another.

There may be other reasons why one would opt for mortgage refinance. Among the spectrum of reasons include making home improvements, reducing monthly amortizations, converting an adjustable rate into a fixed rate, etc. In particular, if one wants to make home improvements, one can apply for a mortgage refinance with a higher amount than the remainder of the outstanding loan. Mortgage refinance therefore allows one to generate extra cash for carrying out any home improvements.

In order to reduce the monthly payments one can extend the loan repayment period. The key is to apply for a home loan with similar rates but longer repayment periods. Consequently, the monthly amortization will be substantially reduced, and even if the interest rate is a bit higher, one can still reduce monthly payments by extending the loan period length. It is however advised to balance loan period length and interest rate, so that one does not end up overpaying. It seems inequitable for people to overpay just because they want to utilize their income for other non-essential purposes.

For the risk-averse person who fears that interest rates may suddenly rise in the future, one can refinance a home loan and opt for a fixed rate in exchange for the variable rate of the outstanding loan. Fixed rate mortgage refinance option offers a relatively secure way that guarantees protection from future fluctuation of interest rates because the amount of monthly amortization remains as settled in the contract. A more risk-taking person can opt for a variable rate. The positive side of variable rate mortgage refinance option is that one can take advantage in situations when interest rates fluctuate to your advantage. There is a random chance that interest rates plummet down to really low levels. However, one must also be ready for situations when rates fluctuate to really high values. As the saying goes, “No pain, no gain.”

If you are a homeowner with recent bankruptcy on your record you might think refinancing your home loan is not possible. Ten years ago this was true; however, today there is a type of mortgage lender that specializes in bad credit and bankruptcy mortgages. Here are several tips to help you qualify for the best mortgage when refinancing your home loan with a recent bankruptcy.

Refinancing home loans is a stressful time for homeowners with good credit. If you are struggling with poor credit and have a recent bankruptcy there are a number of steps you can take to improve the interest rate and terms you will qualify for on the new loan. Here are three steps you can take starting with your credit.

I. Review Your Credit Reports

As soon as your bankruptcy is complete you need to request copies of your credit reports from the three credit agencies. Your credit reports will contain your bankruptcy along with negative information form each of the creditors listed on your bankruptcy. There is nothing you can do about this negative information; however, if you find errors in your credit reports you need to dispute the error and have it removed.

II. Build a Favorable Payment History

Once your bankruptcy is complete open a credit card account with a company that specializes in credit cards for individuals with poor credit. Expect the interest rate on this card to be extremely high; however, you can use this to rebuild your payment history. Maintain a low balance on this credit card and make all of your payments on time. In as little as 24 months you will find creditors willing to work with you offering competitive interest rates.

III. Shop for the Best Mortgage Lender

If you are unable to wait 24 months before refinancing your home loan, you can find a decent lender in as little as six months. Because you will be paying more for your new mortgage it is important to shop from a variety of mortgage lenders and brokers for the most competitive offer. When shopping for a home loan you need to compare all aspects of the mortgage loans, not just the interest rates.

More people are losing their homes from a lack of knowledge rather than from a lack of money. People are going into foreclosure at record numbers. With rising interest rates, many people are getting behind on their payments. You only need to miss one payment for it to affect your credit score. When you miss two or more that is when the damage can really start.

None of the suggestions in this report should be considered legal or tax advise. Make sure that you check with a legal or tax professional regarding any actions that you may take. Only a professional can give you an idea of all the ramifications of any action that you choose.

This can be a very stressful time. Thoughts of foreclosure, bankruptcy and ruined credit are all present. Many times people panic when they are in this situation. That is the last thing you need to do. If you can remain calm and patient, there may be more help then you were aware of. There are 15 things that you need to know and consider if you are in this situation.

1. Talk To Your Lender.

This is the first place you should seek help. The lender has a vested interest in wanting you to stay in the property. Lenders are in the money business not the real estate business. Believe me they do not want your home.

There are two factors they will look at when evaluating your situation. One is that you must have a legitimate financial hardship. The other thing they will also look at is your future ability to pay. These programs are for short-term problems only.

A short-term situation is one where you may have lost your job, but after a month or two, you now have another one. If you have a long-term problem like the loss of job for 6 months or more, divorce or death in the family, these solutions maybe not be for you

There are three majors programs that you should consider:

Reinstatement. Under this program you would be allowed to restart on the terms of the original agreement. To do this you will have to make up all the back payment, interest and penalties. You would then move forward with your loan as usual and all is forgiven. This is usually the program that you will be on if you have missed several payments.

If you are facing foreclosure make sure that you take a certified check to the trustee of the foreclosure. You will also need to make sure that you receive a letter from the trustee saying that the foreclosure has been stopped.

Forbearance. Under this program, a portion of the principal, interest, penalty or all of the monthly payment will either be forgiven or tacked on to the back of your loan. This will be the program that you will probably be looking at if you have only missed a few payments.

Your forbearance may include a payment plan. This would allow you to pay it back over time. This may not always be a part of the plan, but it may be an additional benefit that can assist you.

Loan Modification. With this plan you actually change the terms of the original loan. This may include a reduction of the interest. That may actually lower your monthly payment. This will help you in the long term.

Home sales have sharply dropped in 2006 compared to the past three to four years. Many Realtors are now scrambling to find homebuyers. What are many of the Mortgage Brokers doing? The same thing, as when home sales slow down, so does their business. I am now seeing it start all over again! Mortgage Brokers with signs on their cars or advertisments stating that they can help you find a house. Not always, but most of the time, they have a large stake in seeing that you buy the house of their choice, not exactly yours. Surely not in your best interest, but theirs. I see the advertisments way to often!

A Mortgage Broker will be featuring a home that he say's you can get with $0 down and low payments. Beware! There is a very good chance that he is marketing the house for a property investor that has offered to pay him/her a nice little sum of money if the Mortgage Broker finds a buyer for the house and closes the deal. Usually these houses were once a foreclosure. Ninety percent of the time they are a low quality house that has not been kept up. In researching the title, you may find the house has a very long chain of title over the past 6 to 24 months. These houses get flipped around from one property investor to the next.

The end owner usually owes more than it is actually worth. The owner/seller needs to get rid of it, so he employes a less than reputable mortgage broker to market the house to someone that possibly just doesn't understand the market well. The mortgage broker usually pumps up the actual value by having the appraisal streched by a less than reputable appraiser. What happens if you follow his lead? 1.You pay to much for the house. 2. You get less than desirable mortgage terms. 3. Your stuck in a house, as well as a mortgage that you can't sell out of if you need to! This is bad news! It happens way to frequently. Mortgage Brokers like this are "Predators!" Please believe me when I say that they have not your best interest in mind, but their own!

Acronyms seem to be everywhere in the mortgage industry. Freddie Mac is one such acronym and an important one when trying to understand how the mortgage industry works.

A Quick Guide to Freddie Mac

Freddie Mac actually stands for the Federal Home Loan Mortgage Corporation. Based in McLean, Virginia, Freddie Mac is a social financing experiment that has worked out very well. It was created in 1970 by the federal government, but is a shareholder owned entity that trades on the New York Stock Exchange. It remains heavily regulated by the government, which makes it one of the few quasi-publicly traded government agencies/business entities. How it became known by that name is anyone’s guess, but the company performs a very important function in the mortgage industry.

As you know, the real estate market went through an absolutely massive boom recently. A lot of money was moved during that market in the form of mortgage loans. Given the rate of purchase for homes, have you ever wondered where the money was coming from? Well, the lenders were selling off the loans on the secondary market to gain liquidity so they could write even more loans. This is where Freddie Mac comes in.

Freddie Mac is charged by the federal government with providing liquidity in the secondary mortgage market. Simply put, it buys loans from lenders that meet certain classifications. By serving this function, Freddie Mac pumps money into the market, giving the bank the ability to continue to issue loans to you and me. This is reflective of an overall government policy of promoting home ownership, which is the staple of middle class America.

While Freddie Mac stands ready to buy loans from retail lenders, it does not just buy anything. Instead, it issues specifications regarding the types of loans it will buy. As you might guess, first time buyers and low income purchases are favored. The point is to expand homeownership, and Freddie Mac does that through its various policies.

If you are in the process of refinancing your home loan, shopping around for the most competitive loan offer will save you thousands of dollars. There are other steps you can take before applying that will improve the interest rate and loan terms that you qualify. Here are three tips to help you qualify for the best mortgage when refinancing your home loan.

I. Clean Up Your Credit First

Mortgage interest rates are on the rise and anything you can do to improve your credit score prior to applying will save you money. Your credit score has a major influence on the interest rate and terms you will receive on your new mortgage. Your credit score is derived from the contents of your credit reports and because these reports are maintained by three separate companies, they are prone to mistakes. Before you apply for any home loan it is important to request copies of your credit reports and carefully review them for errors. If you find errors you will need to dispute the mistakes with each credit agency.

II. Shop Around for the Best Home Loan

Comparison shopping for a mortgage will help you find the best home loan offer. The Internet is a useful tool for quickly locating and comparing mortgage offers. You can easily screen mortgage loans from dozens of lenders with little time and effort. When you compare home loans it is important to compare all aspects of the mortgages you consider, not just the Annual Percentage Rate. There is a simple way to do a line by line comparison to determine which mortgage is a better deal. You can learn more about mortgage comparison shopping by registering for a free mortgage guidebook at the end of this article.

If mortgage payments are suddenly higher, the most probable aspect to blame would be the ever-rising mortgage interest rates. The reason is that since 2004 the Federal Reserve Board has raised the fed-funds rate, which influences mortgage interest rates, 17 times. In recent years, many people have taken advantage of near-record-low interest rates while scooping for real estate properties. In order to make mortgage payments even lower, many signed up for variable-rate home mortgage refinancing options.

One of the benefits of variable is that you get an extra-low interest rate for the first few years of the loan, and then, often every year, it gets reset to reflect the actual market movements in interest rates. For a “5-1” variable-rate mortgage scheme, the loan is fixed at a low introductory rate for five years and then begins floating in relation to interest rates each year after that. However, if the market interest rates surge up, the rate of your own will consequently rise, albeit caps for regulating rates from rising too much are in place.

The risk is that one could end up paying 10% or more on a home mortgage refinancing in later years. This is not quite apparent in fixed-rate home mortgage refinancing wherein one’s loan will be locked at a rate, say 6.25%, until the whole loan is paid. The risk is not at all senseless—that is if you plan to leave the home after a few years, variable-rate home mortgage refinancing can make a lot of sense. You get an extra-low rate initially, and you are not likely to be around if and when rates escalate.

Not everyone is fortunate enough to figure out such a trick. Some are blinded by the chase of the cheapest rates out there, grabbing variable-rate mortgages for the really low introductory rates that these offer despite planning to stay in their new home. So now that the tide seems to be turning, and rates are rising, the potential heartache for a lot of people is looming. According to a report from ACORN, the national community advocacy group, about 75% of subprime home loans were variable-rate mortgages.

Many people have opted for even riskier home loans than ordinary variable-rate mortgages. Some signed up for interest-only loans and negative-amortization loans, and according to a Los Angeles Times article, "substantial numbers of borrowers using interest-only and payment-option loans have modest incomes and could already be stretched financially."

As monthly payments on variable-rate mortgages are starting to swell, many Americans have found a way to defer the day of reckoning. They have turned to variable-rate mortgages in recent years to afford a home as prices escalate. Refinancing with fresh variable-rate mortgages, for now, are successful in keeping keep monthly amortizations low. However, due to the fluctuating nature of variable-rate mortgage refinancing, their payments will likely rise even higher in the future.

Typically set at synthetically low rates during the first years of the loan, variable-rate mortgages are then reset at par with the prevailing market interest rates. The stake for borrowers was that interest rates would linger at low levels.

Recently, the first big wave of the mortgage boom is peaking as more than $400 billion worth of variable-rate mortgages, or about 5% of the total outstanding mortgage debt, will readjust in the current year 2006 for the first time. This figure is based on a projection made by Loan Performance, a research firm. In 2007, another $1 trillion of mortgage loans will readjust. When the readjustment takes place, a typical borrower, say with a $200,000 variable-rate mortgage could witness a nearly 25% increase in monthly payments as the mortgage adjusts from the introductory rate of 4.5% to the prevailing rate of 6.5%. Equivalently in total dollars, the monthly amortization will climb from $1,013 to $1,254. Confronting such imminent plight, many borrows are refinancing into their second or third variable-rate mortgage rather than paying more now, as mortgage industry experts confirm and loan data indicate.

So far, the number of borrowers that opt for variable-rate mortgage refinancing is relatively small. However, mortgage industry analysts anticipate that the numbers will surge in 2007. Quite commonly, these borrowers are putting off any eventual shock of higher payments by another two to three years, if not longer.

For now, this refinancing boom is alleviating apprehensions that rising interest rates and higher monthly amortizations would induce some borrowers into foreclosure or coerce them to sharply cut back on other spending. Consequently, consumer spending may endure contrary to what some economists had expected.

Nevertheless, mortgage refinancing also corresponds to a doubling-down on a stake that housing prices will continue to go up especially in hot real estate markets such as Miami, Tampa and Sarasota. A value of a home that falls closer to the amount of the loan could curb the ability to refinance. As a result, this may prompt the homeowner to either sell the home or invest more in it.

Notwithstanding, borrowers still believe that loans make sense because many of them plan to move to another home in a few years or earn more. They refinance again, often using the same assumptions they held when they made their earlier loans.