HELOC & Home Equity Loan : They're Different !

If you own a home, you may be familiar witch the home equity line of credit (often called a HELOC). But perhaps you don't understand the difference between a HELOC and a home equity loan. Consider this the first step in determining what you need.

First, we'll tackle the difference between these two products. We'll start with the similarities: Both are secured loans, which means you're putting up your home as collateral for them once you borrow. Both offer fairly low interest rates, particularly right now, and allow for a tax deduction. And both require equity in your home. Essentially, these products are second mortgages: You're borrowing the equity in your home to use the cash.

The difference is that with a home equity loan, you receive a lump sum and pay it off on a monthly basis over a set period of time, generally between five and 15 years, although lenders may offer terms as long as 30 years. The interest rate and monthly payment will be fixed for the life of the loan. You may want a home equity loan if you need a large chunk of money at once, such as consolidating credit card debt (which is only a good idea if you trust yourself not to run the cards back up once you've cleared the debt off of them) or making home improvements, (which was the original purpose of this kind of loan).

A HELOC is a little more complicated. It's a pot of available money you can draw on as you need it. Similar to a checking account or, more accurately, a credit card, because you pay interest on the money you borrow. You'll be given a debit card or check book to access the money, and a maximum amount you can borrow, but you don't' have to use it all, and you won't pay interest on the portion you don't touch. The interest rate on a HELOC is generally variable, which means your monthly payment will vary as well. If you want some money in your bank in case you ever need it, such as an added emergency fund -- you may be a good candidate for a HELOC. They also tend to be a good fit for someone who has ongoing extensive home improvements, particularly if you want to borrow in increments over an extended period of time.

Margin Loan to Buy Home

Especially in high-price residential markets where demand outstrips supply (like in California), an increasing number of potential home buyers are looking for fast cash to close a deal or end a bidding war. The competition is also getting tougher because of large amount of cash flowing in such hot markets from Chinese investors.

Such home buyers are turning to margin loans for short-term financing, which are backed by a borrower’s investments. Typically, brokerage firms permit loan amounts of up to 50% of the portfolio’s value at the time the loan is originated. The money can be used for almost anything, including bridge financing—when a buyer needs cash to close on a new home before the current home is sold.

There are some pricing advantages of Margin loans over mortgages and other more traditional loans. There are no closing costs, no property appraisal and no prepayment penalties. Borrowers don’t even have to make monthly interest payments, though interest will then accrue on the unpaid interest, raising the borrower’s liability over time.

The downsides? Brokers fix a 'maintenance margin'; if the portfolio’s value drops below this threshold, the borrower is subject to a margin call and then must immediately deposit cash to bring their securities back to the maintenance margin percentage. Otherwise the brokerage firm will sell assets (at that lowered down value) to bring the portfolio back in line. Also, beware of the broker's charges and commission that needs to be paid for such sales.

That's why the margin loan should be used as a short-term strategy before applying for a jumbo mortgage or other financing after the home purchase closes. This reduces the risk of a margin call, a demand by the broker to immediately repay the loan if and when the portfolio’s market value falls.

First Time in 4 Weeks...Mortgage Rates Fall

According to the weekly report from Freddie Mac, Mortgage rates fell for the first time in four weeks. The 30-year fixed rate mortgage averaged 3.75% in the week ending March 5, 2015, down from 3.8% last week; it was 4.28% a year ago. For someone buying a $500,000 home, the difference between buying that home today with a 30-year mortgage instead of a year ago is about $170 a month (less now!).

The 15-year fixed-rate mortgage fell to 3.03% from 3.07%; it was 3.32% a year ago.

 The 5-year Treasury-indexed hybrid adjustable-rate mortgage fell to 2.96% from 2.99%; it was 3.03% a year ago.

 The one-year ARM average remained at 2.44%. It was 2.52% a year ago.

Mortgage Rate Goes Below 4%

As more and more signs of a slowing global economy drove investors to the safety of government bonds, the US mortgage rates plunged, sending borrowing costs for 30-year loans below 4% for the first time in 16 months, as signs of a slowing global economy drove investors to the safety of government bonds.

At 3.97%, the 30-year rate is down from 4.12% last week and 4.53% at the start of the year and at its lowest point since the week of June 20, 2013, when it was 3.93%, Freddie Mac said in a statement today. The average 15-year rate fell to 3.18% from 3.3%, the McLean, Virginia-based mortgage-finance company reported.

The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year mortgage also remained at 0.5 point.

The average rate on a five-year adjustable-rate mortgage dropped to 2.92% from 3.05%. The fee was steady at 0.5 point.

For a one-year ARM, the average rate fell to 2.38% from 2.42%. The fee held at 0.4 point.

Third Straight Weekly Decline for Fixed Mortgage Rates

according to the latest data released Thursday by Freddie Mac, mortgage rates fell for the third week in a row. During this week the interest rates declined for most types of mortgage loans. The average rate for 30-year and 15-year, fixed-rate mortgages, including those backed by the Federal Housing Administration, fell to their lowest level since November.

Here's a look at the cost of home loans, all changes are from the week prior:
-- 30-year, fixed-rate mortgages fell to 4.39% from 4.43%.
-- 15-year, fixed-rate mortgages slid to 3.48% from 3.52%.
-- Jumbo-loan rates for a 30-year, fixed-rate mortgage were unchanged at 4.29%.
-- FHA-backed 30-year, fixed-rate mortgages dropped to 4.09% from 4.13%.
-- The one-year ARM average held steady at 2.43 percent with an average 0.5 point, unchanged from a week ago.

Mortgage Rates Edged Higher

Mortgage rates rose early this week, with Freddie Mac’s survey showing lenders offering 30-year fixed-rate loans to solid borrowers at 4.37%, up from 4.28% a week earlier.

The average rate for a 15-year fixed home loan rose from 3.32% to 3.38%, according to Thursday's report, and the start rate also rose for variable-rate loans with an initial five years at a fixed rate.

The average fee for a 30-year mortgage declined to 0.6 point from 0.7 point last week. The fee for a 15-year loan was unchanged at 0.6 point.

The average rate on a one-year adjustable-rate mortgage fell to 2.48% from 2.52%. The average fee rose to 0.4 point from 0.3 point. The average rate on a five-year adjustable mortgage increased to 3.09% from 3.03%. The fee held steady at 0.4 point.

The increase was driven by speculation that the Federal Reserve would reduce its $85 billion-a-month bond purchases, which have helped keep long-term interest rates low. Deeming the economy to be gaining strength, the Fed announced in December and January that it was reducing its monthly bond purchases.

Mortgage rates tend to follow the yield on the 10-year Treasury note. The 10-year note traded at 2.73% Wednesday, up from 2.71% a week earlier.

Maximum Loan Limits As Set By FHA

Starting in January, the Federal Housing Administration (FHA) lowered its maximum loan limits in most housing markets, with the aim of forcing buyers at the higher end to turn to private sources. Each area in the country has a limit tied to its median home price and roughly 650 counties in the US are affected by the lower limits.

Historically, the FHA's mission has been to help those with limited resources to buy a home. The agency does not make mortgages itself, but guarantees loans made by other lenders. Its loans require down payments as low as 3.5 percent and the credit standards are not as stringent as conventional loans, making them the go-to loans for most first-time homebuyers.

Since the mortgage meltdown several years ago, the FHA attempted to fill the void created by private lenders leaving the risky market. Loan limits were raised by the Economic Stimulus Act of 2008 to make mortgage credit available during a time when private lending options were severely limited. With few private lenders willing to take on the risk of low-down payment loans, the FHA's share of mortgages has grown to one-third of all home loans. By guaranteeing fewer loans, taxpayers will not be on the hook for as much money.

As private capital returns to the market, lower loan limits will enable the FHA to concentrate on those borrowers that are still under-served. It will also help the FHA get back on solid financial footing. The agency backed a large portion of the loans made in the first years of the economic downturn, many of which soured as well, resulting in major losses.

At the very least, as FHA loans become less attractive to borrowers, it gives private lenders a chance to step up and provide some competitive options to government-backed loans.

Status: Mortgage & Housing

Mortgage:

The average rate for a 30-year fixed-rate mortgage rose to 4.53% in the week that ended Jan. 2, reaching the highest rate since September, from 4.48% in the prior week, according to a Thursday report from federally controlled mortgage buyer Freddie Mac.

"Mortgage rates edged up to begin the year on signs of a stronger economic recovery," said Frank Nothaft, Freddie's chief economist. A year ago, the 30-year rate was at 3.34%.

The average rate for the 15-year fixed-rate mortgage increased to 3.55% in the latest week from 3.52% in the prior week. Meanwhile, the rate for a 5-year Treasury-indexed hybrid adjustable-rate mortgage rose to 3.05% from 3.00%. The rate for a 1-year Treasury-indexed ARM was unchanged at 2.56%.

Housing:

Sales of new homes are expected to rise faster than sales of existing homes, which make up a larger share of the market. According to the National Association of Home Builders, a trade association, sales of new single-family homes are expected to hit 607,000 in 2014, compared with an annualized rate of 464,000 in November. If sales of new single-family homes rise above 600,000 next year, the rate would remain below an average of more than 1 million over the five years leading up to a 2005 peak, government data show.

Meanwhile, sales of existing homes should hit about 5.14 million in 2014, up from an annualized rate of 4.9 million in November, according to the National Association of Realtors . Existing-home sales averaged a bit more than a rate of 6 million over the five years leading up to 2005’s peak.

Mortgage Rates Fall This Week

After two successive weeks of increase, average U.S. rates on fixed mortgages declined this week, keeping home-buying affordable.

Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan fell to 4.22% from 4.35% last week. The average on the 15-year fixed mortgage dipped to 3.27% from 3.35%.

Rates had spiked over the summer and reached a two-year high in July on speculation that the Federal Reserve would slow its bond purchases later this year.

The Fed held off in September and October but in the minutes for the October meeting, policymakers said they still expected to dial down their easy-money policy within a few months. The bond purchases are intended to keep long-term interest rates low.

Mortgage rates tend to follow the yield on the 10-year Treasury note. They have stabilized since September and remain low by historical standards.

Hybrid adjustable rate mortgages were mixed. The five-year ARM average fell to 2.95% with an average 0.5 point. It was 3.01% a week ago and 2.74% a year ago. The five-year ARM has been below 3% three of the past four weeks. The one-year ARM average held steady at 2.61% with an average 0.4 point.

Mortgage Rates Continue To Rise

As reports of a strengthening economy started trickling in, mortgage rates have moved closer to their high points for the year this week.

Among the positive economic reports credited for pushing rates higher were those of real gross domestic product and the ninth consecutive monthly increase in residential construction spending.

The average interest rate on a 30-year, fixed-rate loan was 4.57%, up from 4.51% last week and 3.55% in the same week a year ago, Freddie Mac said Thursday in its weekly survey.

The average rate on a 15-year, fixed-rate loan was 3.59%. That compared with 3.54% last week and 2.86% a year ago.

Longer term, though, the general trend of rising rates is affecting activity. In March, the average rate on a 30-year, fixed-rate loan was 3.57 percent, according to the Federal Housing Finance Agency. By June, it was 4.07 percent, the highest rate for that popular mortgage product since September 2011.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.28% this week with an average 0.5 point, up from last week when it averaged 3.24%. A year ago, the 5-year ARM averaged 2.75%.

1-year Treasury-indexed ARM averaged 2.71% this week with an average 0.5 point, up from last week when it averaged 2.64 percent. At this time last year, the 1-year ARM averaged 2.61%.

Should You Pay Cash for a Home or Get a Loan? Should You Hurry to Pay Off Your Mortgage?

This decision depends on a number of factors which can be different for different people. First and foremost is having the financial wherewithal to be able to make the choice.

Obviously, paying cash for a home means the home is fully paid for. But if most or all of your cash is tied up in the home, putting all your eggs in one basket does expose you to some risk: First, your cash is all tied up in one place and if you suddenly need it, you cannot get it out easily.

One way to be proactive about this is to always have an 'emergency fund' of 6-12 months of living expenses set aside.

There is always a chance that a "should not pass up!" investment opportunity might present itself, and with all your money tied up in the house, you won't be able to take advantage of it.

Paying cash also means losing out on the tax-deductible interest rate of a mortgage. If you stay in your home for minimum of 2 years, you will be sheltered from up to $250,000 in capital gains if you are single and $500,000 if you are married. Returns on other investments are taxable, which minimizes your return.

In the end, it will take an analysis with a CPA to determine your personal best route. It depends on so many things: If you take out a mortgage and have lots of cash on hand, are you actually going to invest it wisely or blow it? You know yourself.

If you do invest it, how much risk can you tolerate? It's not always easy to predict return and risk level on stocks and bonds, whereas real estate, though at the mercy of the market, is a bit more stable and predictable.

Mortgage: Average 30-year Rate Up To 4.46%

Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year fixed loan jumped to 4.46% this week, the highest level since June 2011. That's up from 3.93% from the previous week.

It was the largest weekly increase in the 30-year rate since April 1987, Freddie Mac said.

The average rate on the 15-year mortgage jumped to 3.50% from 3.04%. That's the highest since August 2011. A year ago, the rate on the 15-year mortgage was at 2.94%.

According to Freddie Mac's survey, the average fee for 30-year mortgages held steady this week at 0.8 percentage point. The fee for 15-year loans rose to 0.8 point from 0.7 percentage point.

The average rate on a one-year adjustable-rate mortgage increased to 2.66% from 2.57%. The fee for one-year adjustable-rate loans rose to 0.5 point from 0.4 point.

The average rate on a five-year adjustable-rate mortgage rose to 3.08% from 2.79% The fee rose to 0.7 point from 0.5 point.

The increases follow rising yields on the 10-year Treasury bond in the wake of Federal Reserve Chairman Ben Bernanke's comments last week that the Fed could start trimming its stimulus policies later this year if the economy continues to improve. Mortgage rates track the 10-year Treasury rate, which is at a two-year high.

Higher rates caused mortgage applications to fall 3% from last week, according to the Mortgage Bankers Association (MBA). Refinancing applications also fell to their lowest level since late 2011. But the purchasing index increased 2% and is up 16% from a year ago, according to the MBA.

Mortgage Rates Rose for the Third Week in a Row

Average U.S. rates on fixed mortgages rose this week for the 3rd week in a row to their highest levels since mid-March. Even with the gains, they remained close to historic lows.

The average rate for the 30-year loan increased to 3.59%. That's up from 3.51% last week but near the record low of 3.31%. The rate on the 15-year loan jumped to 2.77% from 2.69% last week. The record low is 2.56%.

Mortgage rates rose because they tend to track the yield on the 10-year Treasury note, which rose above 2% this week for the first time since March 14.

The increase came in reaction to the release of minutes from an April 30-May 1 Federal Reserve meeting on interest-rate policy. The notes showed some Fed officials were willing to start cutting back on a bond-buying program as early as June if the economic recovery strengthens. The program involves buying $85 billion per month in Treasury bonds and mortgage-backed securities to keep rates low as a stimulus to the economy. In testimony to Congress on Wednesday, Fed Chairman Ben Bernanke said the central bank will continue the stimulus until the outlook for the labor market improves “substantially." But pressed for more specifics, Bernanke didn't rule out cutting back on bond purchases by the end of the summer.

Mortgage Rate Fell for a Fourth Week

According to a Freddie Mac survey out today, the average rate on a 30-year fixed mortgage fell to 3.4% in the week that ended April 25. That's down from 3.41% the prior week and headed toward the record low of 3.31% hit in late November. The same week last year, 30-year fixed mortgage rates averaged 3.88%.

Even better, for those who qualify, the average rate on a 15-year fixed-rate mortgage hit a record low of 2.61% this week, down from 2.64% in the prior week. Freddie Mac began keeping nationwide average records in 1971.

In its weekly survey of mortgage lenders nationwide, Freddie Mac said adjustable rate mortgages hit a record low this week. The average rate on the 5-year Treasury-indexed hybrid adjustable-rate mortgage fell to an all-time low of 2.58% from 2.6% a week earlier. That type of mortgage has been available nationwide since 2005.

According to Freddie Mac the 1-year Treasury-indexed ARM ticked down to 2.62% in the latest week from 2.63% a week earlier.

Reverse Mortgage

At some point of our life we stop looking too much forward in future -- we have no option, you know. At this point of time you may think of taking advantage of whatever you built up over the years. Reverse mortgage is one such opportunity that one can avail of and utilize as an effective way for retirement income.

Reverse Mortgage is a kind of loan that you can get on the equity built up over years of home mortgage payments. It is getting very popular among senior citizens. The money can come back to you in different possible ways: In a one time lump sum, in monthly payments for life or designated length of time or in a credit line that allows the homeowner to decide when and how much they want to be paid. With a reverse mortgage you no longer make monthly payments. For a change, you start receiving them.

Here we present a few important details that are common among all kinds of reverse mortgages:

• Within each program of reverse mortgage, the amount of loan you can get generally depends on your age and your home's value. The older you are and the more your home is worth, the more cash you can get.
• The proceeds from a Reverse Mortgage are Tax-Free.
• You continue to be the owner of your home and remain responsible for paying your property taxes and home-owner insurance and for making property repairs, just like you are with your forward mortgage. Failure to these may lead to termination of your mortgage contract and the lender may impose repayment.
• All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home, which means that none of the co-borrowers has lived in the home for one continuous year.

50-year Mortgage

In last few years ...with increasing home prices and mortgage rates and more competition for catching the attention of future homebuyers, lenders were desparately figuring out ways to keep the dream alive for millions of people who want to own their own home. Banks started offering 40-year mortgages, which now account for about 5% of all home loans. And soon thereafter appeared the 50-year mortgage. A handful number of lenders began offering 50-year adjustable-rate loans to buyers who need to keep payments low but wish to own a property.

If you wish to try this, you may note the following important points: A borrower with the 50-year mortgage builds equity very slowly. And because rates on the loans are adjustable, a borrower's monthly payments could rise in future and a risk on your affordability always remains.

It may work out good for you if your plan is to own the home for about 5 years, while the loan's interest rate remains fixed. For those who wish to make a longer term commitment to their residence, it would be better to give a hard look at your current and future financial state and then decide.

And even if your decision is 'yes', try to select a home that is below your affordability level. Do not stretch yourself too much to commit to a larger loan amount. Your luxury of today may turn out to be lots of pain for future years.

The 40 Year Mortgage

The 40-year mortgage, for years a niche product, is finally set to have a strong presence in the mainstream mortgage market. Forty-year mortgages have lower monthly payments than the well-known 30-year version, although they cost more over the life of the loan because the borrower pays interest for 10 years longer. With the lower monthly payments, they are seen as a tool to allow people to buy homes that are unaffordable with 30-year mortgages. Fannie Mae stuck its toe in the 40-year mortgage pool about two years ago when it started a pilot program to buy the long loans from 22 credit unions. Fannie Mae now buys conforming 40-year mortgages from any qualified lender.

It's not a sure bet that 40-year loans will catch on. First, the interest rates are slightly higher--usually an eighth to a quarter of a percentage point. Second, tacking 10 years onto the payment schedule doesn't save all that much money every month.

In recent years, its chief competition was interest-only loans which occupied a big chunk of the mortgage market in high-price cities as buyers hunted desperately for ways to afford more expensive houses. But with rising interest rate of ARMs, the advantages of having an interest-only loan are also vaporing away.

Still, there are a plenty of home buyers who might barely stray outside of those guidelines when applying for a 30-year mortgage--for example, if the house payment would be 29% of monthly income, a 40-year loan might allow a borrower to qualify by sliding under the 28% threshold. The real difference is quite small, though: On a $200,000 loan, the reduction in monthly mortgage would amount to less than 64$ a month on a 40-year, fixed-rate mortgage at 5.25% compared to a 30-year fixed at 5%. Over the lifetime of the loan you'll end up paying much more in total interest, though.

Mortgage & Lawsuit

The worst seems to be over but nobody is not so sure. Many home-owners are still at risk, in particular, with their adjustable-rate mortgages (ARM). Rising interest rates and falling home values are creating an atmosphere of panic among some borrowers who had extended their ability of purchase by selecting such ARM or interest-only mortgages and are now finding their monthly payments at unaffordable level.

But not in all cases the borrowers' greed of possessing a larger home was the sole reason for them to end up in such a miserable state. In many cases, due to heavy-handed salesmanship originating from too much of competetion among loan brokers, inconsistent loan representations regarding the benefits or terms of the loan were made by the brokers. In some cases, unnecessary disclosures which were not required by the law were asked from borrowers at the time of loan origination.

If you feel you might have been led to such a situation for such wrongful business practices, you may consider consulting a consumer-protection attorney. Most consumer-protection attorneys offer a free consultation. If you have a case, you may be charged up to one-third of any benefit obtained through the lawsuit. Some state and federal consumer protection laws provide that the lender, if it loses, pay attorney fees. To find a consumer protection attorney in your area, visit the website of National Association of Consumer Advocates (NACA), a nationwide organization of more than 1000 attorneys who represent and have represented hundreds of thousands of consumers victimized by fraudulent, abusive and predatory business practices.

Fixed-Rate Mortgages Steady, ARM Rates Fall

According to Freddie Mac's weekly survey, interest rates for fixed-rate mortgages held relatively steady for the second week in a row, while rates on adjustable-rate mortgages declined. The ARM rates showed downward movement amid market speculation that the Federal Reserve may cut rates again at its upcoming committee meeting scheduled on 29th and 30th of this month.

The 30-year fixed-rate mortgage averaged 5.88% during the week ending April 17, unchanged from last week's average. The mortgage averaged 6.17% a year ago.

Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, averaged 5.40% for the week, down just slightly from last week's 5.42% average. The mortgage averaged 5.89% a year ago.

Five-year Treasury-indexed hybrid ARMs averaged 5.48% for the week, down from last week's 5.56%. It averaged 5.92% a year ago. One-year Treasury-indexed ARMs averaged 5.10%, down from last week's 5.18%. The ARM averaged 5.45% a year ago.

30-Year Mortgage Rate Slightly Falls While Shorter-Term Rates Rise

According to Freddie Mac's weekly survey, the average interest rate on 30-year fixed-rate mortgages dropped slightly this week, while rates on other mortgages rose. The 30-year fixed-rate mortgage averaged 5.85% for the week ending March 27, down from last week's 5.87% average. The mortgage averaged 6.16% a year ago.

But rates on 15-year fixed-rate mortgages, a popular choice for refinancing, rose to 5.34%, from 5.27% last week. Rates on 15-year mortgages were at 5.86% a year ago.

The 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) also moved up to 5.67% from last week's average of 5.56%. The five-year ARMs averaged 5.88% at this time last year.

One-year Treasury-indexed ARMs averaged 5.24% this week, up from last week's 5.15%. The ARM averaged 5.43% a year ago.