Minkesh Sood asked:


Home owners are in a special situation when it comes to secured loans. A home is often the major investment an individual or couple will make and that property will continue to appreciate in value over time. The longer you stay in a home, the more your home will grow in value and the more wealth you accumulate as you pay down your credit and watch your house grow more valuable.

Banks become conscious that home owners are in a powerful borrowing position. Their home is often their most valued ownership and banks have little fear that the standard home buyer will be unsuccessful to make payments putting that possession at risk. On these grounds, there are attractive secured loan options offered to homeowners using their home as guarantee.

Home:

A home is often the largest asset of a individual or couple. The financial arrangement, or mortgage, planned to purchase the home are secured by the home itself allowing lenders to offer very competitive interest rates. There are a wide range of mortgage options, but mortgages are all similar in that they use the actual property you’re purchasing as collateral.

Once you’re in possession of your home and you begin paying down the mortgage and the value of the assets increases, your equity in the property increases. A home equity loan allows you to borrow against this equity effectively creating a second mortgage or lien on the home. The funds you’ve borrowed are secured by the home meaning a default on your original mortgage or the home equity loan gives the bank the option to foreclose in order to recover their loss.

Mortgages:

The largest secured home loan is the mortgage used to purchase the home initially or as part of a refinance. There are a range of mortgage options including fixed and variable rate loans, government assisted loans and interest only loans. But all of these home loans are secured by the home itself. Very few people are in a position to pay cash for a new property. While there is satisfaction in owning a property outright, there are also benefits to leaving cash invested in other instruments and obtaining a mortgage – even if you don’t technically need to.

In many areas, the interest paid on a home loan is a huge tax deduction. By owning your home outright, you are not able to take advantage of this tremendous tax savings. By taking out a loan for the purchase of your home, you’ll effectively be paying more for the home over time, but you can counteract this by investing the cash you might have used for the home purchase in an account or instrument paying more interest than your mortgage.

If you arrange a mortgage for a new home with an interest rate of six percent, but invest the cash in a combination of instruments paying an average of seven percent over time, you’ll not only be earning a net profit of one percent on your investments, you’ll also be able to take full advantages of the tax benefits.

Home Equity :

When you have a sizeable investment in your home, you are able to access that equity in a special secured loan called a home equity loan. By borrowing a percentage of the equity you have in the home, the bank can offer you lower interest rates on the loan than other options. A home equity loan is often called a second mortgage as the home itself is used as collateral.

Funds borrowed in a home equity loan or line of credit can be used for almost any reason, but most homeowners use the funds for home improvement. Money borrowed against the home is used for additions or to upgrade the house making it more valuable. This effectively increases your equity and is an ideal situation all around.



BOOKER

Carol Bell asked:


While mortgages are the most common way of buying a home, it is remarkable how few people actually understand what a mortgage is. The worst thing to call one is a mortgage home loan and while this expression is in common usage, it is totally incorrect. In fact a mortgage is like a contract whereby the person buying the property (mortgagor) arranges finance to cover the cost from a lender (mortgagee) and the property is used as security against the debt until it is fully repaid. However, it is easier to explain it as a legally binding document where the lender is protected from loss by using the property as security for the debt.

If it wasn’t for the availability of mortgages, individuals and businesses would need to find the full amount for a property in order to purchase it. The way this process works is presented in brief detail during the rest of this article. The problem arises because so many people refer to the buyer as the Borrower and the financier as The Lender, which leads people to believe that the money has been loaned, which is not the case. The security is in fact a lien, which means the mortgagee has legal possession of your property until the debt is repaid.

This system works so successfully because the risk of loss on the part of the mortgagee is all but eliminated as they have legal possession of the property until the debt is completely repaid. This lien is recorded within public records likely to be found at a county courthouse or similar establishment. The lien stays in force while the debt remains but the property is actually owned by the mortgagor. While the mortgagee has legal possession of the property, he does not own it or have the title to it, the legal owner is the mortgagor.

However if the mortgagor or the owner defaults on his or her payments, the mortgagee has the right to dispose of the property to reclaim funds. When this happens, the procedure that follows is called foreclosure but even at this stage it is required to go through the courts first. This is a legally recognized process that must take place often referred to as ‘judicial foreclosure’. This is only a short introduction as the subject is much more complex but this information should make this important issue much clearer.



JIM