A home equity credit line lets you use the equity in your house for private use. It's a loan that lets you access your equity by writing checks on a home equity account. You need to use as much or as little of the equity as you want.

How much equity have I got?

You have equity if your house is worth more than you owe on it. For example, if your house is worth $250,000 and you owe $150,000 on it, you have $100,000 in home equity.

What's the loan process?

To qualify, you've got to have equity in your house. Here's what happens after you contact a lender:

The bank will send an appraiser to determine your home’s value.

The lender will decide the maximum loan amount based totally on the equity in your home.

You may sign on the dotted line and a Deed of Trust will be recorded against your home. This means that if you do not make the payments, your house can be sold.

What are the costs?

When you sign up for a home equity credit line, you pay plenty of the same charges you probably did with your original home loan. These charges can be terribly costly, particularly if you end up borrowing little from your home equity line of credit. Loan charges differ from bank to bank and include costs for:

Evaluation

Recording

Title Report

Messenger Services

Credit History

Document Notary

Document Preparation

Yearly Charges

IRs

Most home equity credit lines have variable rates. Variable rates may offer lower monthly payments at first, but the payments do change and can be way higher.

Fixed interest rates require bigger payments at the beginning than variable rates, but offer stable standard payments over the term of the loan.

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Chapter 13 Bankruptcy offers an important, and often unknown, option to consumers who have residential real estate mortgages. Namely, removing a junior lien holder or “2nd” from your debt. Since the value of real estate has decreased, a common complaint I hear is, “I cannot believe I am paying more than my house is actually worth.” If you purchased a home in the past three to four years and financed with 80/20 mortgages, or if you refinanced your home and took out a second mortgage, chances are you can completely remove that second mortgage and other junior liens from your home.

In some cases, a second mortgage can lower your total monthly bills. For example, you may have six hundred dollars a month in charge cards and other bills. You may be able to borrow the money with your home as collateral. You then take the money that you borrow and pay off the bills. Your new payment may be something like three hundred dollars per month. You pay off bills that total six hundred dollars a month, and that is a three hundred dollar monthly savings. In cases like this, getting a second mortgage can help you meet your budget, and give you a little extra money each month.

If the fair market value works, a motion to get court approval will need to be filed. The mortgage company may oppose this motion. This will then require an evidentiary hearing and perhaps an adversary complaint. If the court decides that the fair market value of the home is below what is owed on the first mortgage, the second mortgage is “stripped” from the home and the debt associated with the second mortgage is made an unsecured debt (essentially being treated like credit card debt). Typically, in a Chapter 13 bankruptcy, a small percentage of the unsecured debt is paid, if at all.

When you do not owe a great deal on your home, a new mortgage can give you a much lower payment. However, it may be best to simply place more on your principle each month. Yet, you might need additional money and a lower payment, and this may be a good option to look at.

Further, recent legislation was introduced in Congress in the first week of 2009 that would now allow Bankruptcy judges in Chapter 13 cases to modify first mortgages by: reducing the amount of the secured claim (i.e. lowering the balance on the mortgage/deed of trust that is secured by the home); changing the interest rate of the loan or modifying the adjustable feature of certain loans; and/or changing the term of the loan. This bill, if enacted, would finally provide some relief to homeowners. In the past, the mortgage lenders have vehemently opposed such a change. However, this time may be different. News reports indicate Citigroup has already suggested that it would support this legislation with some minor revisions, one of which is to require that a homeowner first attempt to modify the loan directly with the lender(s) before the loan can be modified by a Bankruptcy judge.

Learn more about Obama Mortgage Relief Plan Qualifications.

Since most of us do not have hundreds of thousands of cash stashed away in any savings account, when we choose to get our property we need to get out there and get a home loan. A lot of people don’t actually treat home loans as debts however that’s exactly what they are really, and massive ones too normally plus when you do not maintain payments on your mortgage loan, the lending company takes your home away from you.

The answer is that there are certain situations in which that second mortgage or home equity loan can be modified, or as it is known in bankruptcy language, “stripped off.” The first requirement is that a Chapter 13 bankruptcy be filed. (Chapter 7 bankruptcies do not allow for modification of a second mortgage or home equity loan). How this is done is best illustrated by the following examples:

And since you are trying to sell this thing fast – you will likely sell it for less than it’s worth and if you don’t have enough money to pay back all the loans that have been borrowed against it then those in 2nd and 3rd position may end up not getting how much they are owed – ie. if your 1st mortgage that you owe is $50,000 – your 2nd mortgage is $25,000 and your 3rd mortgage is $15,000 – then you owe a total of $90,000. If your house is worth $150,000 then there is lots of room to pay all these bills; however, since you tried to sell it asap and you could only sell it for $100,000 – then there is only $10,000 extra – now we can’t forget the lawyer and Realtor (who are needed to sell the thing – so they get paid 1st, and then the 1st, 2nd, and 3rd mortgages are paid. Seeing as Realtor and lawyer fees can easily get to be more than $10,000 – then the third mortgage (and possibly the 2nd mortgage) won’t get all their money back.

So – now you can see the dangers of being a 2nd or 3rd mortgage lender/holder. You may then ask – why doesn’t the 2nd or 3rd mortgage company just foreclose and then sell the property for what it’s worth and then get their money out too? Well – if you are a 2nd or 3rd mortgage lender, you have to pay the mortgage payments on the mortgages which are ahead of you (otherwise they may go into foreclosure too – and if they sell it before you then you could have just paid a bunch of legal fees and not been paid back when the house sells). So – the moral of the story is simply this – sometimes it does pay to get a more expensive 2nd or 3rd mortgage than to re-do your 1st (or 2nd) mortgage. Also – there is a lot of risk associated with holding a 2nd or 3rd mortgage – so, the rates and fees that they charge are often justified.

A good way to view how many mortgages you have is to think “if I won the lottery – how many mortgages would I have to pay out to own this house completely (and not owe anyone anything on it)?” You may then ask why you’d ever want a 2nd (second) mortgage or a 3rd (third) mortgage?

Learn more about Obama Mortgage Relief Plan Qualifications.