GCS Finance – Loans and finance advice.

Learning the Basics of Home Equity Loans

By admin

Having untapped equity in your home is more or less like throwing away perfectly good money. Although personal loans are becoming increasingly more popular due to how easy they make it for individuals with a good credit score to borrow money, there are better ways to get funds.

One of them is home equity loans. These transactions are considerably more personal than others, mainly due to the fact that you are required to offer the equity in your home as collateral for the loan.

Unfortunately, there is a lot of debate about whether or not the benefits outweigh the risks, however, home equity loans are a financial option that should never be ignored. The amount of money that you can get from these is enough to do anything from home improvements to purchasing assets that will serve to further increase the value in your house.

What is a home equity loan?

More commonly known as the second mortgage, a home equity loan is a loan that you can take out with a bank or mortgage. This having been said, it is important to keep in mind the fact that it does not replace your current mortgage.

Furthermore, a home equity loan is a secured transaction which means that you must offer collateral in order to apply for it. As its name implies, the collateral is formed from the equity that you have in your home. This having been said, a home equity loan is often easier to access than others, however, it carries more risk, in the sense that the bank will be able to take possession of your home if you fail to repay the money.

It is also possible to apply for a HELOC, or a home equity line of credit, which also uses the equity in your home as collateral. The main difference between the two is the fact that the loan has a fixed status, which means that you borrow a set amount of money that you must repay over the course of a specified number of months, with interest.

On the other hand, a HELOC simply sets a limit to how much you can borrow and lets you take out how much money you need, whenever you want. In most cases, there are no serious penalties for HELOCS, unless you fail to return all of the money that you’ve borrowed, at the end of the agreement. Generally speaking, HELOCS are very similar to credit cards in terms of how they work, with the main difference being that they have considerably larger credit limits.

The more or less obvious advantages of a home equity loan

Returning to actual equity loans, these are in many ways better than other ways to secure funds. They offer the same flexibility that personal loans do, but they come with better interest rates and terms and conditions. It is also worth mentioning that most lenders will let you choose whether you want to pay fixed or variable interest.

From a functional point of view, the fact that they can be taken out for periods between 15-20 years makes it great for debt consolidation or for long-term costly home improvement projects or other expensive purchases.

Pretty much all lenders will prefer that you repay the money that you borrow instead of having them taking possession of your property. As a result, they offer a lot of flexibility when it comes to terms and conditions and also try to work with the borrowers to find affordable interest rates and decent repayment timeframes.

How a home equity loan can put you in a difficult financial position?

The greatest risk is also the most obvious. The fact that you essentially guarantee the loan with your home means that if anything happens, the lender will be able to seize your property. While no bank will ever prefer to take your house instead of getting the loan money back, failure to make the payments may lead to you losing your home.

Furthermore, the fact that home equity loans are long-term financial commitments means that a lot can happen, especially if you are making large monthly payments for your house. Any change in income can be dangerous and becoming unemployed for an extended period of time can be disastrous.

The risks can be even greater if you chose to pay variable interest, especially if the economy is unstable.

Conclusion

Home equity loans are extremely useful if you need a very large amount of money that you can pay over the course of one or two decades, however, it does come with inherent risks. In most cases, if you do all the math beforehand and plan your expenses, at least to some degree, you should be able to repay the money without actually feeling it.

How Your Car Insurance Is Affected By Credit Score?

By admin

| No Comments

| Insurance

Your credit score is one of the most important financial records that you’ve got. Banks and other lenders regularly check your score to determine how well you manage your finances and if you follow the loan terms that you agree to.

The reason why credit score is considered to be more important than any other type of financial record is the fact that it cannot be artificially raised, it must be built up over time. Furthermore, it is generated using an algorithm that includes dozens of aspects of your financial life, from how you use your credit cards to how much money you borrow. It even includes information regarding how accurate you are with your monthly payments.

This having been said, this score also plays a very important part in what kind of deals you can get when you want to borrow money or to insure your property. It will affect everything from mortgage interest rates to how insurance companies will establish if you are likely to file a claim or not.

Only certain parts of your credit score are used by insurance companies

The insurance companies will not look at your entire credit score in terms of structure but at certain elements such as past insurance reports. In other words, things such as how much money you make or how many jobs you’ve changed in the last few years will not matter when it comes to what kind of insurance deal you will get.

All the elements that matter to the insurance companies are turned into a separate indicator called an insurance score. Here are some of the financial details that go into calculating it:

Existing debt;
Payment history;
Your history of late payments;
Credit utilization;

If you are using too much credit or if you regularly miss the deadlines for your monthly payments, you may be looking at more expensive insurance.

All the elements above, along with other details are weighted against the policyholder’s credit, along with any insurance claims that there may be and an insurance credit score is created. While there is no way to accurately calculate your insurance score, it is possible to make an approximation based on the details mentioned above. Generally speaking, if always pay your debts on time and you rarely use your credit cards, you can expect your insurance score to be high.

What are the details that do not matter when calculating your insurance score?

Things such as employment history or average monthly income will not play any part in calculating your insurance score. This means that even if you have recently quit your job or if your monthly income is relatively low, you are still likely to get a great insurance deal, based on your insurance score alone. Furthermore, insurance companies will also ignore the fact that you are looking to start a company, which would normally mark you with a higher financial risk rating.

Where you live is extremely important for determining your insurance rates?

One very important thing to remember when it comes to your insurance credit is the fact that it may not always be calculated in the same way. Each state in the US decides if it allows insurance companies to use the information contained in your credit score to generate the insurance one or to establish what your rates will be.

In states such as California, Massachusetts, and Hawaii, it is illegal for companies to use your credit score to determine what your monthly insurance rates should be. In these states, the insurance companies choose their own algorithms when it comes to establishing car insurance rates, or set them solely on your history of car accidents, the years that you’ve been driving, your monthly income, and other similar details.

This having been said, these are only 3 states where your credit score doesn’t matter. If you live in any of the other 47, you will have to make sure that you do not skip any monthly payments, do not use a lot of credit, and that you generally do everything that you can to keep your score up.

Conclusion

Your credit score is in many ways your financial calling card. Lenders such as insurance companies can use it to find out everything that they need when establishing if you are eligible or not for their services. The data contained within also plays an important part in determining what kind of monthly rates you will get when looking to insure your car or home.

Generally speaking, you should always try to have a good relationship with the bank and to make your payments on time. Even if you live in one of the three states where credit score cannot be used to establish insurance rates, having a good financial track record is important.