"My Husband and I Have about $15,000 in Debts and We Own a Home. However, We Have Only a Few Thousand Dollars in Equity in Our Home. What Are the Chances of Our Qualifying for a Home Equity Loan? What Are the Advantages and Disadvantages
Each week, Second Opinion asks two real-estate professionals one of your questions. Read what they have to say, right here.
PROPERTY SECURES LOAN RISK
NAME: Eric Weinstein
TITLE: President, Carteret Mortgage Corp.
The market has really changed the past few years, and there is a plethora of new home-equity-line products available.
Home equity lines (also known as second mortgages) are priced according to the risk to the bank. The higher the combined loan to value, the pricier it gets. The combined loan to value is calculated by taking your first mortgage plus your proposed second mortgage and dividing that amount by the estimated value of your home.
Based upon this CLTV, a second mortgage typically is the cheapest source of money you will be able to find compared with credit cards and unsecured loans. First, such a mortgage is usually tax deductible. Second, the bank can feel very safe, because people will pay a loan against their house before anything else.
The advantages of a home equity loan are:
1. Cheaper rate.
2. Tax deductibility.
3. Longer term, allowing lower monthly payments
The disadvantages of a home equity loan are:
1. It is a lien against your house. If you don't make your loan payments, you could lose your house.
2. If you borrow all or most of the equity (say 95 percent to 100 percent), you may not be able to refinance or sell your home without paying it down.
USE CARE IN PICKING PROGRAM
NAME: Bob Gill
TITLE: Senior loan officer, Atlantic Coast Mortgage
Let's say you have $3,000 of equity in your home: You owe $97,000 and the home is worth $100,000. …