Home Equity Loan Versus Business Loan

Money is essential for all businesses to start up, operate and expand. The Small Business Administration (SBA) states that while poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. They go on to say that when looking for money, you must consider your company’s debt-to-equity ratio–the relation between dollars you’ve borrowed and dollars you’ve invested in your business. The more money owners have invested in their business, the easier it is to attract financing.Ideally, it’s best to start your business on money you have in savings or otherwise liquid. But, like most people, you probably don’t have that much money available and you’ll need a loan. About the only way a startup business can get a bank loan is through one of the loan programs offered by the SBA, a federal agency that doesn’t actually loan money directly, but rather guarantees the payback of a certain percentage to banks. Thus, you must prove your creditworthiness with the bank, which requires excellent credit. And, you must meet the complex SBA eligibility criteria.Home equity loans (second mortgages) are cost-effective ways of getting startup capital because they generally offer lower interest rates, the choice of a fixed mortgage rate or an adjustable rate mortgage (ARM) and shorter repayment terms and lower payments than other business loans. Unlike business loans, it is easy to qualify for a home equity loan, even if your credit is not perfect. Even if you already have a second mortgage, you may want to cash out on equity through mortgage refinancing because many times, the attractive rates and flexibility of second mortgages make more sense than to refinance your first mortgage, especially if your first mortgage rates are good.

Equity Line Of Credit Calculators

Equity for an individual or a business is defined as the total assets minus the total liabilities. For instance, when a borrower has a loan against property, the equity of the borrower is determined by the amount he or she has already paid. The current value of the property is estimated, and the amount owed as loan is subtracted from the value. This amount is considered the equity of the borrower. A line of credit is defined as the maximum amount of money that a person can borrow from a financial institution without requiring any additional approval. The lender determines it on the basis of two major factors namely the credibility or credit worthiness of the borrower and earning power. Quite often, these calculations are quite complicated and both borrowers and lenders turn to equity line of credit calculators.Equity line of credit calculators help borrowers find out the extent of credit they can obtain from their lenders. To calculate this, the borrower has to find out the maximum, combined loan-to-value (CLTV) ratio. The loan to value ratio is calculated as the percentage of the property’s appraised value that the lender will lend the borrower. The loan, in this case, is the sum of the proposed credit line, plus the balance of any outstanding mortgage debt. Value is defined as the current market value of the property, which is generally assessed by an independent appraiser.Equity line of credit calculators also allow the borrower to assess whether debts need to be consolidated. Consolidation of debts means combining all existing debts into one loan. This may help the borrower gain a more favorable interest rate. Borrowers typically enter the number of months needed for repayment and the calculator displays the monthly payment, savings in interest expense, any tax-related savings and the total cost savings.An equity line of credit calculator helps a borrower decide a cheaper financing source for an auto loan or a home equity loan.

Home Equity Line Of Credit FAQs

Many people dream of renovating and upgrading their homes. They are held back because of rising costs of amenities and high interest rates of the mortgage loans. Homeowners can certainly take advantage of their home with a HELOC or home equity line of credit.Many borrowers have queries regarding a HELOC. The most common question is on the meaning of HELOC, and what sets it apart from a home equity loan. Customers need to be informed that HELOC is the acronym of a Home Equity Line of Credit. It offers a mortgage loan with the option of taking it wholly or a part thereof. This is not the case in a home equity loan.Customers are also interested in knowing the advantages of HELOC over other loans. The interest rate is normally lower than the interest rate paid on credit cards and other kinds of non-secured debts. The interest rates on credit cards and personal loans are generally non-tax deductible, but the interest paid on HELOC is tax deductible.This loan can be used for debt consolidation to pay off high interest credit card debts, home renovation and improvements, purchasing and refinancing a home, to pay off educational expenses and university and college tuition fees. Another important query is about the qualification criteria and calculation of the amount of credit. Usually the credit history of a person is evaluated, along with relevant information on employment, income, type of property and existing mortgage or other loans. The amount of loan is calculated on the value of the home and the applicable credit limits.People are also concerned about additional hidden costs that might burden the repayment period. Generally most banks and lenders do not charge any additional expenses, except an annual fee for their services to the borrower.

Lowest Home Equity Line Of Credit Rates

A home equity line of credit is a combination of a line of credit and an equity loan. It is also referred to as HELOC. It gives the maximum loan amount based on credit and equity, with the difference between total assets and total liabilities. This permits the borrower to take a maximum loan amount, provided it does not exceed the credit limit, without re-applying each time.There are different equity line of credit rates, like home equity line of credit, commercial equity line of credit and best home equity line of credit. In HELOC, homebuyers can use some of the equity that is built up in the home and can be used personally. This facility is available for homebuyers, but not for tenants. Many reputed banks offer HELOC to borrowers.A home equity line of credit is given to the homeowner by check or a credit or debit card, which can be used by the borrower according need. Interest is paid on the amount that is used. The options depend on the policies of the different banks and the requirements of the homeowners.The different terms, conditions, fine print and rates of different loans are based on and vary according to customer requirement. Borrowers can make a smart choice by conducting research on all essential information including the prevalent rates. If customers have trouble spots on their credit reports, it is essential to fix the errors before approaching various loan lenders.Customers should also study all the available options and compare the different loan terms from various banks and organizations. Sometimes borrowers avail of a lower rate by negotiating with the bank loan officer, as they are very keen on retaining customers.

Equity Line Of Credit

An equity line of credit, abbreviated as ELOC, is defined as the combination of a line of credit and an equity loan. This type of credit allows the user to fulfill his or her dreams however he deems fit. To be more precise, it establishes a maximum loan amount based on credit and equity. The term equity refers to the difference between total assets and total liabilities. This loan permits the borrower to take as much money needed without re-applying each time. The only requirement is that the total amount of borrowed funds should not exceed the credit limit. Borrowing is an easy process like writing a check and the borrower gets the money when it is needed.Money is borrowed in a lump sum, and it is paid back over a period of years with interest. The interest rate varies from one to another. Compared with other types of consumer loans, the interest rate is relatively low for ELOC and is tied to prime rate. It is a smarter way to borrow than any other methods of borrowing.Home Equity Line of Credit, Commercial Equity Line of Credit, and Best Home Equity Line of Credit are some of the different ELOC lenders. An Equity Line of Credit loan is a perfect choice for anyone whose home is not mortgaged. There are also World loan customers who can obtain an equity line of credit over 30-years and convert the equity in their home to cash. Equity Credit Lines are available in most states.

Second Mortgage Loans Are Cool for Debt Consolidation and Cash Out

With the refinance boom officially over, second mortgage loans are cooler than ever. Many homeowners have been blessed with low interest rate first mortgage loans that they want to keep. The need for cash did not disappear with the refinance boom, so 2nd mortgages and home equity loans will be the loans of choice for the next few years. Anyone who has a 30-year fixed rate loan at under 6% should keep their existing loan in tact and take out a second loan on their home if they need cash. The Federal Reserve has hinted that there are more rate hikes coming, so if you are a mortgage broker or lender, it is time to brush up on your second mortgage product line, because people still need to access cash, and there is no better way to accomplish this.Home Equity Loans to 125% You don’t need any equity, and this loan program will actually allow you to exceed the value in your home up to 125%! These 2nd mortgages are typically offered with a fixed interest rate for 15, 20 or 25 year repayment terms. If you have credit card debt, or high rate loans, this is an excellent loan for eliminating compounding interest and saving money! IHE executive, Sandy Sarconi stated, “There is no better way for a hard-working family with no equity in their home to lower bill payments and get out of debt.”* Fixed Interest Rate 2nd Mortgage* No Mortgage Insurance Ever* No Equity Second MortgageStated Income Second MortgagesMore and more people are seeking reduced documentation loans. More and more people have become self-employed, and many people simply like the streamlined process.* Stated Income Equity Loans* No Income No Asset 2nd Mortgages* No Income Verified Home Equity* No Doc Equity RefinanceSecond Mortgage Credit Lines Sure the interest rates are variable. Yes the Fed has increased the prime rate index eight times in the last few years, but people love low payments that interest only loans provide. People also love the flexibility of only having to pay interest on the money you access. Where else can you get money waiting for you without having to make payments until you use spend cash!* Interest Only Payments* Home Lines of CreditIn 2006, the often bashful, second mortgage has emerged from the shadow of first mortgage, and evolved into the cool loan of choice.

Home Equity Line Of Credit Rates

Home equity line of credit rates are the rates of interest charged to a borrower on the amount borrowed. It is also known as the ‘annual percentage rate’ or APR. The APRs of a financial institution’s home equity lines of credit depend on a factor known as ‘prime.’ Prime is the rate published in the Wall Street Journal on the first day of publication after the 10th of each calendar month.The margin of ‘prime’ varies and depends on the approved credit line amount and combined loan-to-value (CLTV) ratio. CLTV ratio is the percent of a property’s appraised value that the lender will allow as a loan. The loan is calculated as the sum of the proposed credit line and the balance of any outstanding mortgage debt amount combined together. Value is estimated as the current market value of the property.Insurance on a property that is to be secured is necessary. Flood or fire insurance, may also be required. Generally, any additional fees or conditions imposed by the city, state or county where the subject property is located are the borrower’s responsibility. The APRs are subject to change without notice.Many financial institutions provide certain rate discounts to new home equity customers. They may specify a certain minimum amount to be drawn for a certain period of time as the criteria. Existing customers are generally required to clear their current balance. These conditions may vary depending on the lending organization’s policies.There are many organizations that offer competitive rates for home loans. Their respective web sites carry all the relevant information pertaining to home equity line of credit rates. They also have credit calculators that display the amount approved and monthly payments by considering the current APRs and Prime.There are several fees that are applicable apart from the standard rates quoted by the company. A borrower must select a lender who offers competitive rates and does not have too many assorted and hidden charges.

Is a Home Equity Line Of Credit Tax Deductible?

Many people invest in real estate by making a full upfront payment, but are not financially sound enough to renovate or refurbish it. These people can avail of a personal loan against their property with a home equity line of credit or HELOC. A HELOC offers a higher loan amount than other similar loans based on the credit limit of the borrower.A HELOC allows a borrower to explore the extent of credit obtainable from lenders. Repayments have to be made every month, along with the interest that could be tax- deductible. There are limitations on the deductions on the personal tax returns for the interest paid on HELOC. Only that part of the interest on debt can be deducted, which cannot exceed the value of the collateral on a home and has to be less than $100,000.If the borrower makes the real estate investment as a corporate entity, then deductions in the form of the business interest expenses can be expensed. This transaction needs to be reflected on personal returns. It must be documented in writing and should be within the limits of normal business transactions. Customers need to consult their tax consultants and advisors on the legality involved in order to save on tax.Financial consultants will give advice on planned tax-breaks regarding HELOC. The interest deduction is not a dollar-for-dollar reduction of the taxes. It is only a percentage. The deductions may not be as valuable due to the declining tax rates. If the adjusted overall income is high enough, the phase-out for itemized deductions may prevent the borrower from taking a full deduction. Advisors warn against choosing a HELOC simply for the benefit of tax deduction, as many other deals also provide similar tax advantages.

Commercial Equity Line Of Credit

Commercial Equity Line of Credit, abbreviated as CELOC, is best suited to meet the industry’s changing financial needs. It is mainly used by small businesses, especially start-ups. A Commercial Equity Line of Credit requires a zero balance for a specific time annually. CELOC provides easy access to money when the borrower needs it. Using checks provided, the money can be easily accessed.A Commercial Equity Line of Credit allows the mortgager to borrow money on a regular basis to finance transactions and for business purposes. The amount borrowed depends on the company’s collateral and cash flow needs. In this method of borrowing, the borrower mortgages company assets, rather than personal assets, as collateral. Even though it is harder to obtain, it provides greater borrowing power.With the help of a Commercial Equity Line of Credit, the borrower can regulate cash flow by borrowing only what is needed. It reduces interest expenses often incurred by over borrowing. The interest rate equals or exceeds the prime rate.A Commercial Equity Line of Credit provides almost all the benefits that are available with a Home Equity Line of Credit. The line of credit can be used to improve cash flow or expanding business. Also, it is used for other expenses such as purchasing equipment and increasing inventory. A major advantage of CELOC is that the borrower has to pay the interest only on the amount accessed.Also known as Operating loans, a Commercial Equity Line of Credit plays a vital role in the business field. By providing quick access to cash with the option to pay overtime, CELOC ensures flexibility to the borrower.

Getting a Home Equity Line of Credit

One of the more in vogue home equity choices available today is the home equity line of credit. By using the equity in your home you can borrow a certain amount of money that for all intents and purposes is set aside for you to use as needed. With a line of credit you will not receive the entire loan amount in one lump sum, but you will be able to write checks against that credit line when and where you need to. Consolidating credit card debt, remodeling your home, or paying for college are all ways one can use this type of home equity loan.Home equity lines of credit come with a variety of interest rates and re-payment options. You can get a more conventional fixed rate loan that offers monthly payments or you can go the balloon route. Just be careful of lines of credit with balloon payments at the end, having that large payment sneak up on you unawares can be a real budget buster. There are some loans which require a balloon payment at the start of the loan, which can be cost prohibitive, but if you have the money it can keep the remainder of the payments easier to fit into your budget.Before you commit to getting this type of loan be sure to compare any and all offers you may have received and make sure that your monthly budget will not be overly affected by the monthly payment. Read over all documents closely and be sure to question anything that doesn’t make sense. Because you will be offering your home as collateral it is important that you adequately protect that investment. No loan is worth losing your house over.Also keep in mind that different home equity lines of credit have different ways in which you can access the money as well as minimum and maximum withdrawal limits. Some lines of credit will allow you to write checks while others may use a debit/credit card system. Be sure to choose the system that will work best for what you need the money for.The most important aspect of just about any home equity line of credit is the interest rate. These can vary depending on the lender and your credit score. Since the interest rate will determine the amount of money you will above the principal owed it is important to get as low a rate as you can find. You can also get a lower interest rate by paying points up front, but unless you have a good chunk of cash available this may not be easy to do.Closing costs are another aspect of a home equity loan you need to be aware of. There is such fierce competition among lenders these days that they try and keep these costs as minimal as possible. They will also roll these costs into the loan keeping you from having to come up with several thousand dollars up front.A home equity line of credit can be a great way to leverage to equity in your home on an as needed basis. It can give you an amazing amount of flexibility when it comes to paying down debt, buying a new car or remodeling your home.