Amortization Plan

Getting approved for a home equity loan is very similar to getting approved for a mortgage. You’ll have to go through the same process as you would with a mortgage loan and you’re offered the same types of interest rates. The problem with a home equity loan is that the banks always changed the way they lend the money out.

When real estate was booming it was easy to loan out money because the worth of the home was increased by 5% or 10% over the next year. So the bank would loan out more than people could afford because there was no downfall for the bank.

Let’s say you buy a home for $200,000 and your loan is for 100% of that so you owe the bank $200,000. Well if you stop paying your mortgage the bank will foreclose on your and sell the home to get their money back. So even if they sell it for $200,000 then they have to pay real estate fees of 5% which is $10,000. So the bank lost $10,000.

Now let’s assume you owe the bank $180,000 of the $200,000. Well 2 years ago the bank would loan you a 110% home equity loan which is an additional $40,000 on the $180,000. So now you have a $220,000 mortgage loan on a $200,000 home. The bank was gambling the fact that you’ll pay your mortgage on time for at least a year and they’ll get their money back. Well that’s when the market crashed and the $200,000 sunk to $160,000 and the loan is still for $220,000 so the banks took a huge hit!

So I recommend using a free mortgage calculator to figure out how much you can actually afford and go with that number as long as the bank approves you for it. As long as you keep making your monthly mortgage payment on time then the bank won’t have any reason to foreclose on your mortgage.

Now that the banks had that big issue and lost a lot of money they will only allow 80% home equity loans. That means if you have a $200,000 home you can get up to $160,000 worth. That means you have to owe less than $160,000 to the bank and then you can get up to the $160,000 for a loan. The reason is for the market going down so quickly the bank wants to save themselves if anything should happen.

Make sure to use an interest calculator before buying a home or getting a home equity loan. The interest rates make a big difference and you should stay on top of them to make sure you get the lowest monthly mortgage payment.

By: Chris G Bell

Tags: Bank Loan, Banks, Easy Money, Home Equity Loan, Mortgage Loan, Mortgage Payment, Rea, Real Estate Fees
Posted in Real Estate · March 2nd, 2010 · Comments (0)

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