5 Tips for Savvy Use of Your Home Equity Line of Credit

by Tim Paul

Tapping your home's equity to pay college expenses, consolidate credit card debt or even to buy a new car or boat is common place. Many economists attribute the additional buying power afforded consumers through home equity debt as a primary reason the nation's economy has been able to emerge from the recent recession. Yet, aside from simply allowing consumers to spendmore, the flexibility and efficiency of a home equity line of credit (HELOC) can provide the financially savvy person with the means to savemoney, make money or simply take advantageof opportune situations he or she might otherwise miss out on. Here are five tips to show you how:

Tip 1: Take Advantage of Higher Insurance Deductibles! You probably know that raising deductibles on auto and homeowners insurance policies can mean big savings on insurance premiums. If you increase the deductible on a homeowner's policy from $500 to $1,000, you'll cut your premium by as much as 25%! Yet many people don't do this because they fear they may not have the necessary cash available in the event of a loss. With low-interest cash readily available through a home equity line of credit you'll have the security and confidence you need to raise your deductibles and reap the savings!

Tip 2: Lock In Big Savings! Credit card companies (e.g. the GM card) frequently have shopping programs with names like "Main Street Savings" on a 30-day free trial basis. These programs allow you to buy discounted gift cards (20% discount) for major national retailers like Target, Sears, and Home Depot. The flexibility afforded by a home equity line of credit can allow you to purchase (during the free trial period) a large amount of discounted gift cards for major retailers you frequent. Then use these cards instead of cash or credit when you purchase everyday items (The cash you would have spent can be used to pay down the HELOC). Although you pay low interest on the home equity credit line, you receive a front-end discount of 20% on everything bought. When combined with store coupons and sales, you can realize total savings of 70% or more! In short, a HELOC provides the low interest cash availability to take advantage of bargains like this that you might otherwise have to pass on.

Tip 3: Take Advantage of 0% Balance Transfer Offers! We've all seen no-fee credit card offering Ŕ% APR" on balance transfers for 6, 12, and even 18 months. If you have a balance on your HELOC, you may be able to take advantage of these offers. Here's an example of how: last year I accepted such an offer and promptly transferred $10,000 from my home equity credit line balance (which had a 4.25% rate). Then I cut up the card! For the next eleven months, I paid the monthly minimum credit card payment (3% of the outstanding balance) by writing a check from my home equity line of credit. In the twelfth month, prior to the expiration of the 0% offer, I paid off the remaining balance with another home equity credit line check. During the 12 months, I also made sure to continue my regular payment towards the HELOC at the same level, meaning that more of each went to pay down principal and less went to interest. Net result: interest savings of over $350.00, lower principal balance on my HELOC, and a positive addition to my credit repayment history!

Tip 4: First Pay With a Rewards Credit Card! If you're contemplating using your HELOC for a major purchase, you should consider whether or not the merchant your dealing with accepts credit cards. Why? Because it makes a great deal of sense to pay first with a rewards credit card and then pay off the card with your HELOC check. On a recent $14,000 bathroom remodel, I was able to charge plumbing services, cabinets, and almost everything else to my Fidelity/MBNA 529 College Rewards Mastercard. This card pays you back by putting 2% of everything charged into a 529 college savings plan. Result: $280.00 in college savings that would have been missed if I paid the bills directly with home equity credit line checks! Whatever rewards credit card you favor, it's sensible to pay first with the card whenever possible. Keep in mind, though, you must promptly pay off the balance and not incur finance charges.

Tip 5: Replace Your 1st Mortgage with a HELOC! According to Money Magazine, if you have more equity than debt and plan to stay in your home for 3 years or less, you should consider replacing your first mortgage with a home equity line of credit. HELOCs are currently available around the country at rates of 4% or lower. Even if rates increase a full percentage point each year, they'll still be low when you pay off the loan. Best of all, there are no closing costs with most HELOCS so you won't have to worry about recouping them through interest savings as you do with a traditional mortgage refinance. A savvy person - using tip 3 in conjunction with tip 5 - might even move a portion of his mortgage to a 0% credit card thanks to the flexibility of a home equity line of credit.

How to Find the Best Home Improvement Loan

by John Mussi

If you're looking for the best home improvement loan for your money it can sometimes seem like an uphill climb. You may not know whether the offer that you've received is the best that you can get, or if you should try to find a better offer elsewhere… but you shouldn't let finding the best home improvement loan stress you out so badly.

Getting the most out of your loan is easier than you might think; you just need to keep a few things in mind to help you to get the best home improvement loan.

Equity

When searching for the best home improvement loan, equity is a major factor. If you're not exactly sure what equity is, it's the portion of your home or real estate that you actually own… the percentage of the mortgage that's been paid off. If you've paid back 10% of your mortgage, then you'll have 10% equity; if you don't have a mortgage or you've already repaid it then you'll have 100% equity in your home.

The equity that you have is important in finding the best home improvement loan, since it's the value of your home that's acting as collateral for the loan.

The more equity you have, the better chance you have of getting low interest rates and a high loan amount.

Rates fluctuate

Obviously, interest rates play a key part in finding the best home improvement loan. Interest rates will fluctuate on a national level as a way to fight inflation, but they will also vary from bank to bank and finance company to finance company.

This is one of the main reasons that shopping around for a loan can be so important; getting multiple loan quotes for your home improvement or repair project can mean the difference between getting the best home improvement loan with a low interest rate and paying more because you took the first offer you received.

Look for special offers

Sometimes the easiest way to get the best home improvement loan is to simply watch for loan specials that some lenders offer.It could be an anniversary or customer appreciation day, or perhaps a tactic to draw in new first-time customers; whatever the reason for the special rates, you should at least consider them.

Many specials such as this last for only a short period, such as six months, before reverting to a higher rate… but if you can make payments at a lower rate for that period of time that reduce the total amount you pay at the higher rate, it might be a good idea to give it some serious consideration.

A Guide to Getting Bad Credit Home Improvement Loans

by John Mussi

You might be wanting to look into bad credit home improvement loans but are unsure of where to start. After all, how do you get a good loan when your credit isn't the greatest?

What you probably don't realize is that there are a number of lenders who offer bad credit home improvement loans, which use the equity of your home or other real estate to determine the amount of the loan with no additional collateral needed.

These bad credit home improvement loans can be used to make repairs to your home or real estate, or they can finance expansions, new buildings, or any of a number of home improvement projects.

The key to getting these loans is knowing where apply and what they're looking at once you do.

Finding places to apply

A variety of banks, finance companies, and other lenders offer various bad credit home improvement loans.

Many of these lenders advertise this fact with print, television, and radio ads… however, the ones with the flashier ads will often have you paying for their advertising costs with extra fees and higher interest rates.

The best place to start looking for bad credit home improvement loans is the bank or credit union where you have previous accounts… cheques, savings, or even other loans.

Since you're a repeat customer, you might even get a reduced interest rate. Don't take the first offer that you get, though, unless you're certain that you won't be able to beat it elsewhere.

Get at least four or five different quotes for bad credit home improvement loans before deciding on one so that you can make the most informed decision.

Borrowing against equity

Bad credit home improvement loans base the amount that you borrow off of the equity of your home or real estate, which is the amount of the mortgage or home loan that you've paid off. 100% equity means that you own the home or real estate completely, whereas 30% equity means that a bank or lender has a lien or legal claim to it and you've only paid off 30% of the money that you borrowed to purchase it.

The more equity you have in your home the larger the amount you'll be eligible for when you apply for bad credit home improvement loans, and may also cause you to have lower interest rates if the equity is high in comparison to the loan amount you're requesting.

Three month credit repair

Having bad credit can be a stigma that can take years to get rid of, but in some cases the effects of your efforts can be seen in as little as three months.

Begin trying to pay off as much of your outstanding debt several months before you begin shopping for loans, making sure to make all of your payments on time. This will create a small bubble of positive reports in your credit history, which some potential lenders will see as a sign that you're making an effort to turn your finances around.

It's a good idea to start at least three months beforehand, since some creditors only report quarterly… plus, it gives you three months worth of debt reduction which is a boon regardless of everything else.

Planning Ahead for a Home Equity Loan

By Tom Kerr

Home equity loan delinquencies are on the rise, as many consumers fall behind on their payments. But you can help to avoid those problems by planning ahead before you borrow, or by using a flexible home equity line of credit or HELOC.

The American Banker's Association now reports that delinquencies for home equity loans are trending steadily upward, pushed by the higher cost of adjustable interest rates. Interest on most mortgages and home equity loans is tied to the prime rate, and it rose dramatically within the past two to three years as the Federal Reserve hiked rates 17 times. During the same timeframe, many houses also lost market value because the real estate market slumped, making it harder to sell them to pay off mortgages. Homeowners who default soon lose their homes to foreclosure.

Look before you leap

To avoid becoming one of these unfortunate statistics, experts recommend that you carefully plan your financial future before applying for any kind of home equity loan. Because these loans are secured by your home, missed payments can result not just in penalties and fees, but also in the tragic loss of your house.

The easiest way to borrow against the value of your home is through a home equity loan or home equity line of credit (HELOC). Regardless of which method you choose, it's recommended that you don't borrow more than you absolutely need. Also, beware of offers to loan you more than 100 percent of the value of your home. Those loans could leave you "upside down" or owing more to the lender than your house is worth. While you struggle to make payments, your indebtedness will grow because of accrued interest, and the snowball effect can soon get out of control.

Boost your home's value

Some financial counselors advise that you use home equity loans only to make direct investments in your home, such as room additions or remodeling projects. That way, the loan helps boost your home's value. Using equity loans to pay for nights out on the town, a new wardrobe, or other temporary treats you otherwise couldn't afford can be a quick path to red ink. In the end, you might put your most important asset-your home-in jeopardy.

HELOC help

Those wishing to borrow money for special projects or expenses may prefer to use a HELOC instead of a home equity loan. The lender will determine your credit line based on the value of your property, your income, and your routine expenses. Then you'll be given special checks or a card similar to an ATM card. You can access your credit line with cash withdrawals until you reach your limit; at that point, you'll be denied access until you pay off some of the balance. This provides a built-in mechanism to protect you from overextending yourself. All of us can benefit from that kind of budgetary guidance or imposed discipline from time to time.

Use Home Equity to Spruce Up Your Home

By Tom Kerr

Tough Seller's Market? Use Home Equity to Spruce Up Your Home

With foreclosures hitting all-time highs, it takes additional creativity to successfully market a home. But a home equity loan can help you dress up your property and complete a sale, even in a highly competitive market.

Dressing up your home before listing it for sale is always a good idea, but in today's market, it's absolutely essential. The Reuters news agency reports that approximately one out of every 135 households in the U.S. is now affected by foreclosure, and the glut of inventory puts extreme pressure on prices. Homeowners trying to sell in this soft market need to add cosmetic appeal and perceived value in order to attract the attention and interest of qualified buyers.

Home facelift

Experts recommend cosmetic improvements such as fresh paint, landscaping, or refinishing of hardwood floors as the most cost-effective measures you can take to inspire a sale without cutting into your delicate profit margin. Financing even small projects can be difficult, especially if you're already trying to set aside funds for moving expenses, so tap into your home equity to create your budget for sprucing things up. You can use a convenient home equity line of credit (HELOC) for relatively small projects, and you'll have to pay interest only on the amount you actually borrow. For major improvements, like room additions or kitchen makeovers, a home equity loan may be more appropriate. But if you're only borrowing to do a facelift on your property, it's best to stick to simple, inexpensive projects that have high impact in terms of "curb appeal."

Begin with the entryway, because it's the focal point of any home. Replace a tired looking door with a new one, or just sand it and apply three coats of paint or an impressive wood stain to make it look like a million bucks.

Trim back unruly shrubs, mulch the flowerbeds to give them more shape, definition, and color contrast, and plant a few low-maintenance (but colorful) flowers.

Paint is the least expensive and most effective improvement you can make, and many paint jobs-especially on interior surfaces-can be do-it-yourself projects.

Use semi-gloss on door and window frames to make them easier to clean and give them added visual appeal. Stick to neutral colors throughout the house so that you don't turn off any potential buyers whose tastes or interior decorating styles may not agree with your color choices.

If kitchen appliances or bathroom fixtures are outdated, consider replacing them with new off-the-shelf products from your home improvement store. The expense of upgrading them should pay for itself, as long as you avoid the higher-end designer brands.

When your equity-financed improvements generate a sale, the money you borrowed will be paid off at the closing table. You'll incur little or no out-of-pocket costs, while gaining the upper hand in a tough real estate environment.