Bankruptcy Home Equity Loan

If you have bankruptcy or bad credit issues, a home equity loan or line of credit may be right for you. Before making a decision, you should carefully weigh the costs of a home equity loan against the benefits. Shop for the loan terms that best meet your borrowing needs without posing unnecessary financial risk. You can apply for and obtain more information on home equity loans through a mortgage broker, your bank or credit union.

Because the home is likely to be a consumer's largest asset, many homeowners use a home equity loan for major expenses such as education, home improvements, medical bills, or debt consolidation. A home equity loan is a type of mortgage in which your home serves as collateral. Home Equity is the difference between the fair market value (appraised value) of the home and the outstanding mortgage balance.

Home equity loans can either be a revolving line of credit known as a HELOC (Home Equity Line of Credit) or a one-time, closed-end loan sometimes referred to as a 2nd mortgage. A revolving credit line lets you choose when and how often to borrow against the equity in your home. In a closed-end loan, you receive a lump sum of cash. Interest on home equity loans and home equity lines of credit are these types of loans are tax deductible in moist circumstances.

The federal Truth in Lending Act requires lenders to disclose the important terms and costs of their mortgage products, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information.

Truth in Lending

Before you sign an agreement for a home equity loan or line of credit,, make sure you fully understand all the lender's terms and conditions, including:

- The dollar amount you are borrowing
- The payment amounts and when they are due
- The total finance charge, the total of all the interest and fees you must pay to get the loan
- The Annual Percentage Rate (APR), the rate of interest you will pay over the full term of the loan
- Penalties for late payments
- What the lender will do if you can't pay back the loan
- Penalties if you pay the loan back early

The Truth in Lending Act requires lenders to give you this information so you can compare different offers.

Home Equity Line of Credit (HELOC) vs. Home Equity Loan (2nd Mortgage)

If you are thinking about a home equity line of credit (HELOC), you might also want to consider a traditional second mortgage loan. A second mortgage provides you with a fixed amount of money repayable over a fixed period. In most cases the payment schedule calls for equal payments that will pay off the entire loan within the loan period. You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In deciding which type of mortgage loan best suits your needs, consider the costs under the two alternatives. Look at both the APR and other charges. Do not, however, simply compare the APRs, because the APRs on the two types of loans are figured differently:

- The APR for a traditional second mortgage home equity loan takes into account the interest rate charged plus points and other finance charges.

- The APR for a home equity line of credit is based on the periodic interest rate alone. It does not include points or other charges.