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HOME EQUITY LOANS
Last Update 11-13-02
Home equity loans associated with the eMortgage auction are secured as a second (2nd) position home loan. However, they can sometimes be applied as a first (1st) position or third (3rd) position home loan.
Home Equity Loans can be taken out to serve any of several purposes:
“Cashout” for vacation, education, and/or other personal reasons.
"Shortgage of Down Payment" - Home Equity Loans are sometimes taken out simultaneously with a first “purchase mortgage” when more down payment funds are needed by the home buyer than is available.
“No PMI Purchases” - Most conforming rate mortgages require “PMI” ("Private Mortgage Insurance”) for home loan amounts more than 80% of the contract price. As such, home buyers will often take out a first (1st) mortgage for 80% and a home equity loan for 10% of the purchase price. This provides the home owner 90% financing without PMI. Although the home equity loan is at a greater interest rate and paid out over a shorter time period, the home buyer’s bottom line monthly payments are substantially less than paying PMI on a 90% mortgage. Not everyone can qualify for this. However, those whom do, can enjoy significant monthly savings; and the eMortgage auction has often provided the right lenders for this purpose to borrowers with problem credit, bad credit and/or income problems.
“Future Rate and Term Refinances” - This strategy applies conforming rate mortgages. Non-conforming rates refer for to different guidelines. Most conforming rate mortgages, do not allow “cashout” above 80% of the value of a home. Most consider paying off credit cards and other consumer debt as “cashout” If you qualify for a low interest conforming rate refinance and want to pay off credit cards and/or other debt with that refinance, you can not can not refinance for an amount greater than 80% of the value of your home. However, a “rate and term refinance” will allow up to 90% of the value. Thus, a homeowner will often take out a home equity loan to pay off credit cards and consumer debt with a view to refinancing both the first mortgage and the home equity loan at up to 90% “rate and term” to optimize personal monthly cashflow. “Rate and term” means paying off mortgages, not credit cards or other consumer debt. With a “rate and term” refinance, first, second and third mortgages can be refinanced and consolidated up to 90% “Loan to Value” with conforming rate home loans.
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