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MSN Money - The hazards of some home-equity loans MSN Home Hotmail My MSN Sign In Money S earch MSN Money: Help Home News Banking Investing Planning Taxes My Money Portfolio Loans Insurance Banking Home My Accounts Bill Pay Mortgages/Loans Services Credit Reports Financial Tools Track your bills Resources Decision Centers Home Buying Guide Home Financing Your Credit Rating Financial Privacy Better Banking Credit Card Smarts Bankruptcy Guide Commentary Index Related Links Manage Debt More on Budgeting Print-friendly version Send this to a friend See where rates stand Calculate your debt burden here Find a home-equity loan Find books on home buying Find It! Article Index Finance Q&A Tools Index Site Map Don't get fooled by the "special programs" offer mentioned in advertisements. Today's homeowners have forgotten -- or never learned -- the lessons of their grandparents. Recent articles by Terry Savage: How to limit divorce's financial sting , 1/5/2003 5 financial steps to help your aging parents , 1/5/2003 Prepare for the unthinkable: long-term care , 1/5/2003 More... The Basics The hazards of some home-equity loans advertisement What looks like an easy way out of debt could one day put your family out on the street. Get the facts behind those enticing ads for 125% home-equity loans before you put your home on the line. By Terry Savage What looks like a great deal, but could turn out to be the most devastating financial decision of your life? It's when you consolidate credit-card debt by taking out home-equity loans for more than the value of your house, sometimes for up to 125% of the home's value. Unlike traditional home-equity loans that rely on the equity you've built up in your home, these loans aren't tax deductible and usually carry higher interest rates. Find a loan that's right for you at the Loan Center By television, direct mail and now by e-mail, lenders are pushing you to consolidate your credit-card debt by borrowing on your home. Here's the text of an actual e-mail I received recently: Consolidate Debt, Refinance Your Home or Put Cash In Your Pocket! We Have Special Programs with rates starting as low as 2.5% APR 7.22% Special Programs for Self-Employed Borrowers Previous Bankruptcies or Foreclosures OK!! Debt Consolidation - pay off high-interest debts and get the cash you need Second Mortgages - get 125% of your home's value. The television commercials make it look easy and enticing. A top athlete, like quarterback Dan Marino, offers you the chance to cut your monthly payments, pay off your credit cards and take out extra cash to remodel your kitchen or go on a vacation. But think twice. It's important to understand the risks, as well as the attraction, of those lower monthly payments. For some, this is the way to go For many people, a home-equity loan is indeed the smart way to borrow. The interest rate is typically lower, and the interest is tax deductible. Plus, home-equity loans are amortized over about 15 years vs. about four years for credit cards. That means the monthly payment on a home-equity loan is far lower than a minimum required credit-card payment. For example, if you owe $10,000 on your credit card at 15%, you'll probably have a monthly payment of $278. But the same amount owed at 15% on a home-equity loan that's amortized over 15 years results in a monthly payment of only $140. The more you owe, the more enticing a home-equity loan looks. At $20,000 in debt in the same scenario, the home-equity loan costs $280 a month, while the credit card and/or auto debt requires a $557 monthly payment. The trouble comes when people borrow all their home equity to pay off their debts, but they haven't learned how to manage their money well enough to avoid running up credit-card debts and auto-loan debts again. In fact, the lenders have a name for this process: It's called "reloading." Then, if the economy slows or one of the breadwinners loses a job, the next time you get into credit-card trouble, you could actually lose your house. Statistics from the Mortgage Bankers Association underscore the problem. The percentage of homes foreclosed in 1998 was 1.16%, about double the rate of the terrible recession years of the early 1980s, when 0.59% of homes were in foreclosure. The rising foreclosure rate comes even as bankruptcy rates remain high, with 1.2 million filings in 1999. But as people try to avoid bankruptcy, they're increasingly taking out home-equity loans to pay off their other bills. As a result of those home-equity loans (and new mortgage programs designed to help people buy homes with down payments of less than 5%), Americans have a lower percentage of equity in their homes than at any time in history. Essentially, an unsecured loan The real kicker comes if you borrow past the value of your home. Unlike home-equity loans, these loans usually are not considered tax deductible. The law says that all interest on a first mortgage (of up to $1 million) is deductible. And interest on up to $100,000 of a second mortgage or home-equity loan also is deductible. By law, interest on any part of a loan that exceeds 100% of the value of your home is not deductible. In addition, lenders typically charge higher rates, because you've essentially taken out an unsecured loan. An unsecured loan means there is no collateral in case you default on the loan. A mortgage for up to the value of your home is "secured" by the home itself. Many lenders charge interest rates seven or eight percentage points higher than traditional mortgages. In some cases, that's twice what you'd pay for a regular mortgage or home-equity loan. Don't get fooled by the "special programs" offer mentioned in advertisements like the one I mentioned earlier, either. They're either introductory loans, which require large "balloon payments" several years later, or adjustable rate loans in which the rates -- and the payments -- can increase every year. As long as the loan is repaid, it's very profitable. And the lenders know that paying off mortgage or home-equity loans takes a high priority in a consumer's mind, so the default rate is far lower than on unsecured credit-card lending. SMR Research, a financial industry market-research firm, reports that about 30% of all home-equity loans are sub-prime. That is, these are loans made to borrowers who are considered a poor credit risk -- the very people most likely to be caught in the crunch when the economy turns down. Bankruptcy: the only escape The greatest danger for those who fall for this pitch is the fact that they've put their home on the line. If they fail to make the payments, the lender can force the home to be sold in a foreclosure proceeding. The grantor of the original mortgage must be paid off first; then the home equity lender collects what's left from the sale price. And if there's not enough equity to repay the home equity lender, a default judgment will be entered against the borrower for the difference. The only escape is bankruptcy. The generation that went through the Great Depression of the 1930s learned the hard way not to borrow against the family home. So many people lost their homes that by 1935, banks categorized 20% of all mortgages as "real-estate owned" -- that is, foreclosed. But today's homeowners have forgotten -- or never learned -- the lessons of their grandparents. Rising home prices have tempted homeowners to count home equity as a source of ready cash. But that kind of home equity borrowing should only be done as part of an overall financial plan and a disciplined approach to money management. Otherwise, today's easy way out of debt could one day put your family out on the street. 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investment property mortgages lenders rates properties Let -a- Property .info The Home for Landlords, Tenants and Letting Agents investment property mortgage for uk investors Add a Site Investment Property Mortgages UK Buy to Let Mortgages | UK Limited Companies | Commercial Mortgages | Property Development Loan | Business Mortgages | Investment Mortgages For an Instant, No Obligation Quote : >> PLEASE CLICK HERE << For Mortgages UNDER 50k please click here We have teamed up with 'The Money Centre' - one of the UK's largest independent finance brokers . As the Money Centre are a 'Buying Group' they are able to secure mortgages from specialist funding institutions on far more competitive terms than are available to the public direct! For the purchase or refinance of commercial or semi-commercial property for letting on commercial terms Typical terms for this type of loan are as follows: Amount - minimum 100,000 - no maximum Loan to Value - up to 75% Open Market Value of property to be mortgaged. (Experienced Landlords may be able to obtain up to 85%) Term - up to 25 years Repayment - regular instalments of capital and interest. An "Interest Only" option may be available on part of the loan Interest rates - fixed or variable rates are available. Margins on variable rates are usually between 1.5% and 3% above Base Rate or LIBOR Lenders Fees - an Arrangement Fee (usually 1% of loan amount) is payable on acceptance of the lender's formal offer. It may be possible to add this amount to the loan. Other Costs - borrowers are responsible for legal and valuation costs Brokerage Fees - Our standard charge is 1% of loan amount Lenders endeavour to be flexible to meet your needs, but their prime consideration will always be based upon proven ability to service loan repayments. Site Terms and Conditions Back Top all of these retirement uncertainties mean more and more people are turning to Buy-to-Let as a flexible, controlled means of long term saving for early retirement. Once the mortgage is paid off you have an income to live off (or own an asset outright that you can sell) in your retirement. Unlike a pension (you cannot access until you are at least 50 and that is controlled by a faceless fund manager); with Property you can see it, control it, generate an income from it, sell it (usually within a few months). Property is a flexible form of investment where you can easily control and minimise the risks of failure. The most basic idea that someone else is going to pay your mortgage off for you is very appealing for an increasing number of people. Advertising Accommodation Credit Cards General Home Insurance Income Protection Unemployment Insurance Landlords Tenants Insurance Mortgage Insurance Protection Professional Advice Property Finance & Mortgages Property to Buy or Sell Savings Secured Loans Unsecured Personal Loans
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