Uses for 100 Percent Home Equity Loans

You can use 100% home equity loans in a variety of ways.

• Most people use them for debt consolidation. When you are approved for a 100% home equity loan it is given to you at a lower interest rate, which means that you would be paying a lower amount as compared to the interest rate on the debts.

• The 100% home equity loans can also be used for home improvements. Home improvements are never cheap and they are usually paid with personal savings. When you use a 100% home equity loan for home improvements, you increase of the equity in your house and you can use this increased equity in the future to obtain a larger amount on home equity loans.

• The 100% home equity loan can also be used to sponsor the educational expenses of children. A child's education can be tough to pay for using only personal savings. With the help of 100% home equity loans you can easily put your child through school. Whats more important than a child's education?
  

• The 100% home equity loans can also be used to buy a new house or car. By buying a big-ticket item, you improve the quality of your loans.
  

Better Deals ARE Found Online

To stay competitive, online lending companies (which often include your neighborhood banks)
offer better deals. Online loans are also cheaper since overhead costs are reduced when you complete your application online. These savings are passed on to you through discounted offers.

Online mortgage brokers work out special deals with mortgage companies. Because most of them are not hired specifically by one company, they usually give you a few offers to compare. This helps you because you can find the best offer from an unbiased source.

In addition to lower rates, online loans are processed faster than going to a neighborhood banking office. By filling out an application online, your information is processed immediately through a database so they can get back to you faster! In most cases, by the next business day you will receive a call informing you of the status of your loan. A final loan contract will soon follow in the mail for your approval. You can have your money in less than two weeks.

When to use a 100% Home Equity Loan

Most experts will advise you not to tap into your home equity for just anything. Although, if you choose to access 100 percent of your home's equity, there are many ways you could use the available funds; for example: making improvements to your home, simplify monthly finances by consolidating other higher-interest rate credit accounts, purchasing big-ticket items or clearing up medical expenses.

Home Equity Loan Options Over 100 Percent

Sometimes lenders may allow homeowners to borrow more than the value of their home. Generally the next step up is 125 percent home equity loan products. This allows borrowers to access 25 percent more than their home's appraised value.

While a 125 percent home equity loan works similarly to a 100 percent home equity loan, there are a few considerations.

125 Percent Home Equity Loan Advantages

• You can use a 125 percent home equity loan to consolidate high interest rate credit cards or other loans.
• A 125 percent home equity loan offers the borrower another refinancing option.
• A 125 percent home equity loan offers the borrower more likelihood for cash out if the first mortgage balance is high.

125 Percent Home Equity Loan Risks

• Higher LTV ratios often mean higher interest rates for the borrower.
• Higher interest rates could translate into a hefty monthly house payment.
• IRS regulations won't allow a tax deduction on any part of a home equity loan that exceeds the home's fair market value (100 percent).
• If you plan to sell your house, you may have to come up with more money at closing because you have borrowed more than your home is worth. In other words, if you don't sell your home for more than 125 percent of its value, the equity you may have used for a down payment on a new home could be tapped out.
• Some lenders won't offer 125 percent home equity loans as a second mortgage.

Should You Access Your Home's Value with a 100% Home Equity Loan?

There isn't a right or wrong answer; the answer depends on the individual. That being said, borrowing 100 percent of your home's value may offer you greater benefits than other options.

A 100 percent home equity loan or 100 percent mortgage refinance may provide:

• A Larger Amount Of Credit

  Borrowing 100 percent of your home's value may mean access to more funds than from another source (i.e. credit card, regular loans).

• Lower Rates

  Generally, lower interest rates are available for loans secured by a home than for credit cards or other unsecured personal loans.

• Tax Deductibility

  Typically, the interest on a home equity loan is tax deductible; where this is not available for most personal loans.

100% Mortage Refinancing

While the difference is subtle, a mortgage refinance works a little differently.You still access the equity in your home, but you're getting to it in a slightly different way. With a refinance, you replace your existing loan with a new loan and ask for an additional amount (equal to the equity value) which is added to the new loan. By refinancing equal to 100 percent of the home's value, you only end up with one and not multiple loans.

For example, let's say John and Alison want to update their bathrooms. They decide to refinance their current mortgage and access some equity to help cover the costs.

First, they need to figure out how much they owe on their current loan. Their current mortgage balance is $80,000, and appraisals value their home at $100,000. They could refinance 100 percent of their home's value and use the $20,000 left over to help with remodeling costs.

How Does a 100% Equity Loan Work?

When looking for a 100 percent Home Equity Loan, all lenders establish a maximum loan-to-value (LTV) ratio. The LTV ratio is the sum of all outstanding loan amounts divided by the home's appraised value. For example, a lender that establishes a maximum LTV of 80 percent would allow $80,000 to be borrowed if the appraised home value is $100,000 (80,000/100,00 = 80% LTV).

With a 100 percent home equity loan, you actually borrow 100 percent of your home's value (e.g. $100,000/$100,000 = 100% LTV).

Under the above example with $80,000 in existing loan amounts, the borrower could access $20,000 of equity; the difference between the appraised home value and the amount of the outstanding loans.