Annuities: Equity-Linked Certificate Of Deposit: The Safer Low-Cost EIA Alternative

Equity-Linked Certificates of Deposit are a safer, low-cost alternative for those who must have an Equity-Indexed Annuity type of investment. These little-known investments allow you to participate in the growth of the market index while your principal is guaranteed by the Government. Read on to find out more.

Equity-Indexed Annuities are probably the most heavily promoted investment for seniors in today's marketplace. The sales pitch is appealing and the payoff to the agent is very big--up to 13%. The enormous commissions have led to sales abuses which leave seniors holding the bag.

Readers of this column have wised up to the flaws of Equity-Indexed Annuities. But what are the alternatives?

The best alternative to Equity-Indexed Annuities is to use a diversified mix of investments and strategies that can provide an income stream between 6% and 10% while limiting any risk of significant loss. That's what I do for my clients--without long-term time commitments or surrender penalties if they want access to their money.

Another alternative is called an Equity-Linked Certificate of Deposit. They provide virtually all the benefits that Equity-Indexed Annuities are designed to provide, without all the negative strings attached.

Equity-Linked Certificates of Deposit are offered by banks. They pay a return that is based on a stock market index, usually the S&P 500. Just like all Certificates of Deposit, they are federally insured by the FDIC up to $100,000 per individual. The minimum purchase for an Equity-Linked Certificate of Deposit is usually $25,000, but some can be found with $1000 minimums.

The return is based on the average performance of the S&P 500 over a set period of time. Just like Equity-Indexed Annuities, how the return is calculated depends on the issuer. The returns are all based on averaging the gains or losses of the index at set points over the life of your contract. Some Equity-Linked Certificates of Deposit guarantee a 3% return. Those doing so will limit the index return. Others provide 100% of the calculated index return.

The only way you can lose your principal with an Equity-Linked Certificate of Deposit is if you pull your money out before the end of the term. Most will have some form of a penalty, but since there wasn't a big commission paid to an agent to sell it, the redemption penalties should be small. (Some don't allow early redemption so investigate before you invest.) All allow early redemption without penalty if the account holder dies.

One of the major benefits Equity-Linked Certificates of Deposit have over Equity-Indexed Annuities is a short term commitment, FDIC insurance of principal, and much lower fees. They allows you much more control and flexibility.

For instance, let's say you intend to invest $75,000 in Equity-Linked Certificates of Deposit. Instead of putting all the money in a single CD, divide that money between three--purchasing one each year for three years. Then as one comes due you can roll it into another 3-year term. This will reduce the negative effects in how the index returns are calculated while giving you access to $25,000 every year.

There are several disadvantages to Equity-Linked CDs. They don't normally pay interest until maturity, so these investments are not a good choice of those looking for steady income. And like Equity-Indexed Annuities, you don't really get 100% of the market gains because of the averaging used in calculating the rate of return.

You may be wondering why you haven't heard of Equity-Linked Certificates of Deposit before. In fact, you should wonder why the advisor recommending you buy an Equity-Indexed Annuity hasn't recommended them! The reason is they don't pay a large commission so there isn't a financial incentive for the advisor to do so.

Check with your local bank to see if they offer Equity-Linked CDs. Not all do, but they are becoming more widespread. Any broker or advisor that can sell bonds should also have access to Equity-Linked CDs.

I still believe there are better ways to invest your money than Equity-Linked CDs. But I'd much rather see someone invest in them than an Equity-Indexed Annuity. Don't let advisors who stand to gain so much from your money pressure you into investing in an Equity-Indexed Annuity when an Equity-Linked CD is a much better alternative.

Why Choose Home Equity Loan?

Home equity loan can be a difficult concept for the people who have never dealt with home ownership earlier. So, we define equity as the financial value of a property or business beyond any amounts payable on mortgages, liens, claims, etc. In short, home equity is how many houses the person has earned.

Equity is basically the difference between the market value of a property and the claims held against it. It is the difference between the price for which a property could be sold and the total debts registered against it. For example, if your house is worth $150,000 and you owe $110,000 then your equity is $ 40,000. Then, you get home equity loan depending on the credit and many other factors for $40,000 that you have built up in equity.

There are two types of Home Equity Loan:

• Standard Home Equity Loan



• Home Equity Line of Credit

Standard Home Equity Loan is the loan that is assured by your home or is secured by the equity in a home. This type is a better option if you need a large amount of loan and for long term.

Standard home equity loan is also known as Second Mortgage or equity loan. Home equity loan can help people pay off their big interest rates, non tax-deductible customer's debt or meet some other short term needs.

A standard home equity loan is a closed-end loan that can have a fixed term, a fixed rate, and fixed monthly payments. It can carry a variable finance charge rate that switches with a federal interest rate. The amount of the loan is usually made available in a lump sum.

Home Equity Line of Credit is a loan option if you need a smaller amount of loan and for short term. This loan type provides you an option of withdrawing money from an equity account when you need it. The home equity line of credit is an "on demand" source of funds that a borrower can access and pay back as needed.

This type of loan has fluctuating rate of interest. The borrower has to only pay the interest if he carries a balance because this line of credit are essentially a revolving line of credit, like a credit card but with a much lower rate because the line of credit is secured by your home. The borrower can tap the credit line simply by writing a check, and pay back the loan as quickly or as slowly as the borrower like, as long as he meets the minimum payment each month.

Benefits of Home Equity Loan are:

• Home Equity loan can be the best option if you need to repair or reconstruct your home for debt consolidation or for medical or educational expenses.



• It can be used to get rid of credit card debts.



• It can be used to meet your educational loans.



• It can be used for investment in other real estate.



• It can be used to pay off your medical debt.



• It can be used to refinance your other debt.



• It can be used for home improvement.



• It can be used for some major purchases and expenses.



• It can be used for debt consolidation.

Home Equity Loan can be used for home improvement projects because home improvement can be costly and paying that cost might be difficult. Home equity loan provides good interest rates.

Studying in a college has become very expensive these days. Home equity loan can also be used for paying college expenses. This type of loan helps people who have financial problems so that they can afford the college expenses.

It does not matter what is your decision but whenever you take a home equity loan it should be taken from a trusted and well reputed lender. As a whole, home equity loan is a better option while taking loan because it is beneficial in all aspects.

Home Equity Loan

Home Equity Loan is defined as the loan secured by the primary home or by the secondary residence to the extent of the excess of the fair market value over the liability incurred in the process of purchasing. Generally home equity loan are offered in the purchase of the house or any repair, renovation work undergone in the extension of the house. Home equity loans are offered at a lesser interest rate by the Unique Mortgage group. Some of the terms related to home equity loan are equity loan and home equity debt.

Home equity loans are offered on the purchase of the home. When purchasing a home the considerations like the amount to be spent on the construction of the home should be determined. Then according to the budget the home equity loan should be applied. Unique mortgage loan offers home equity loans at a lesser cost and it can be processed through easy online service offered by the mortgage company. Some of the process involved in the purchase of the home equity loan with the Unique Mortgage loan is closure of the previous loan amount, beginning of the home equity loan processing steps, application for the loan, selection of the right rate of home equity loan and finally the calculation of the actual amount of home loan to be borrowed.

Home equity loan is usually described as the method of lending from the homeowner against the home equity loan for using the amount in the construction of the residence. Home equity loan can be used only for the construction of residential purposes and cannot be used for other commercial building. Home equity loan differs from the standard loan and the borrowing of the amount is maintained for over a period of time and it prevents from the excess borrowing and limits the interest rates.

A home equity loan allows the line of credit involved in the borrowing of money used for the construction of the residence using the home's equity as the collateral security. Collateral property is defined as the property used for the purpose of guarantee or pledge that helps in repaying the debt. If the debt amount is not repaid, the lender can make use of the collateral property from getting the money back. Unique Mortgage group helps in the offering of home equity loan at a lower cost and makes the owner to make easy payment of interest rate plus the actual amount at a lower cost. The interest rate for the home equity loan is considered as the lesser in the Unique Mortgage Group and it helps in the easy payment of cash by the borrower.

Unique Mortgage Group offers the home equity loan with the ease of online application and with no hidden costs. Lower interest rates, easy money lending operations and lesser interest rate makes the process of home equity loan easy and simple for the borrowers. A home is a secured and safety place for any individual and hence construction of such homes should be taken with the reputed financial lending institutions. Important credit institutions like Unique Mortgage Group is considered as the best and safe place for the borrowers of home equity loan.

Private Equity May Be Your Best Business Exit Strategy

I must admit that I have had a bias against my clients selling their businesses to private equity firms until I discovered that there are some situations where it might be the best exit strategy. Our firm represents business sellers primarily in the information technology and healthcare industries. Because the valuation multiples in these industries can get a little rich, they do not normally fit the more conservative EBITDA models of the private equity industry.

We normally achieve a better initial valuation from industry strategic buyers that build other synergy factors into their purchase valuation models. In this article we will present some situations where the private equity model is a superior solution for the business seller. We will also present, as one of my colleagues calls it, the "mathamagic" of a good private equity acquisition. Below are four scenarios where private equity may be the best solution.

1. A company in need of growth capital

2. A company where one partner wants to retire and sell and the other partner wants to continue to run the business for several more years

3. A business owner that has 85% or more of his net worth tied up in the business and is "business poor"

4. The business owner that is nearing retirement and wants to take some chips off the table from a position of strength

Before we explore these in greater detail, below are the general investment criteria for most private equity buyers:

1. Strong Management

2. Leading market share or Rapidly Growing Market

3. Established brands and/or strong customer relationships

4. Strong sales and distribution capabilities

5. Platforms with potential for expansion into new products, services and technologies

6. A minimum EBITDA level (private equity firm specific) - Small $2 million to $5 million, Medium $5 million to $10 million, and Large greater than $10 million

7. A minimum transaction size and equity investment level (private equity firm specific)

8. Management teams interested in retaining an ownership stake

A hypothetical transaction:

The business owner is 50 years old and has reached a crossroads point in his company. The business is doing $25 million in revenue and producing an EBITDA of $3 million. The owner is considering taking the company to the next level with either a major capital expenditure or a major expansion of his sales effort. However, he is at the point where he should be diversifying his assets and not plowing an even greater percentage of his net worth back into his business. He loves his business and is not ready to retire.

If he sells to a strategic buyer, for example, he may get a higher initial price. For this example, let's say that he can get $25 million from an industry strategic buyer. A private equity firm that specializes in his industry offers him a company valuation of $21 million and wants him to invest some of that equity back into the company and have he and his team remain on board to run the company. The "mathamagic" is as follows:

Sale price $21 million
Total debt used to fund the transaction(65%)$13.65 mil
Total equity investment required $7.35 million
Private equit firm portion (70%) $5.145 million
Owner reinvestment portion (30%)$2.205 million

The beauty of this model for the owner is that the private equity firm welcomes the equity reinvestment by the seller at the same leverage that the PE firm employs. You might think that if the owner invested $2.205 million into a company valued at $21 million that his ownership percentage would be 10.5% ($2.205 million divided by $21 million).

Because the PE firm relies on debt leverage, the owner gets to reinvest with his ownership equity on a par with the PE firm. Therefore, his $2.205 million represents 30% of the equity in this company and he now owns 30% of a $21 million company. One could argue that he really owns 30% of a $25 million company based on the strategic company valuation. The economics of the initial transaction are:

Company selling price $21 million
Owner equity reinvestment $2.205 million
Owner pre tax cash proceeds $18.795 million

Owner value creation
Value of 30% interest in $25 mil company $7.5 mil
Add cash proceeds from the sale $18.795 mil

Total post sale value $26.295 mil

Now let's look at how this can get really exciting. First, the owner has secured his family's financial future by taking the majority of his company value in cash allowing him to greatly diversify his asset portfolio. He still gets to run his company. He receives an industry standard compensation package with bonuses as an employee CEO. He gets to retire in another five years, which was his original schedule, when the PE firm exits from their investment.

He now has a deep pockets partner to actively pursue his growth strategy. With a private equity firm that specializes in his industry, this is very smart money. They leverage their industry contacts and industry expertise to expand markets and distribution.

They actively pursue tuck in acquisitions to add to the organic growth that they help orchestrate. For purposes of this example, we will assume that the PE group invites the previous owner to invest in these tuck in acquisitions at the same leverage so that his ownership is not diluted. Over the next 3 years they make several small acquisitions totaling $12 million and they employ the same 65% debt. The total equity requirement is $4.2 million. The previous owner reinvests $1.26 million to retain his 30% position.

Fast forward 2 more years (typically 5 year holding period) and the company is now at $100 million in revenue and is a valued target of a big strategic industry player. The PE firm sells the company for $225 million. Our owner's final cash out is valued at $67.5 million. Not a bad outcome for our business owner. Below is a more in depth look at the situations that this strategy can be successfully employed:

A company in need of growth capital - This is a cross roads decision for an owner. He recognizes the potential in his market, but in order to capture it, he must make a substantial investment back into the business either in the form of debt or his own capital. He determines that having a deep pockets partner with industry presence and momentum provides him a superior risk reward profile.

A company where one partner wants to retire and sell and the other partner wants to continue to run the business for several more years - often a successful business is run by two partners with a meaningful difference in age. One may be 65 years old and is a 70% owner in the business and the junior partner is 50 years old and a 30% owner. The senior partner decides that he wants to retire and wants the junior partner to buy him out.

The junior partner does not have access to the capital required. Now he is faced with the company being sold to an industry buyer and he looses his desired management control and his normal retirement timeframe. This is an ideal situation for a PE group to acquire the senior partner's equity and retain the rest of the management to run and grow the business.

A business owner that has 85% or more of his net worth tied up in the business and is "business poor" - This is a fairly common situation and sometimes for marital harmony, the business owner decides to unlock the liquid wealth in his business. The spouse is often in competition for her mate's time with the mistress - translation the business that occupies 60 plus hours of his time per week and much of his thought outside of business hours.

That is bad enough, but when every spare dollar is plowed back into the business to support his growth goals, that can be the breaking point. The conversation might be something like, "You keep telling me we are wealthy, so where is the vacation, the new house, the spending money we should have?" It just might be the right time to recognize your life's priorities.

The business owner that is nearing retirement and wants to take some chips off the table from a position of strength - I can not stress enough how important this can be to your family's financial future. You are 60 years old and you want to retire in five years. Your company is doing great and you still have the energy and desire to run your business. Why would you sell now? There are several compelling reasons.

This strategy requires the business owner to view the business sale and their retirement as separate, contingent events. One answer is to move up your sale timeframe, but not necessarily your exit timeframe. While this scenario may be difficult to envision at first, it can be very advantageous.

Too many owners wait too long and end up selling because of a negative event like a health issue, loss of a major account, a shift in the competitive landscape, or family demands. So, the best decision is to sell your company to a PE group 5 years before you plan to retire, put the bulk of your net worth into a diversified portfolio of financial assets, and agree to run the company for the PE firm for five years.

An additional, unsettling factor for business owners contemplating retirement are potential changes to the tax code. Democratic party leaders, including the major presidential contenders, have put forward proposals to change the current tax structure. Business owners and other wealthy citizens should pay close attention. Most of the proposals would increase personal income tax rates and other forms of taxation.

For example, the current 15% tax rate on capital gains, previously scheduled to expire in 2008, has been extended through 2010 as a result of the Tax Reconciliation Act signed into law by President Bush in 2006. However, in 2011 this lower rate will revert to the rates in effect before 2003, which were generally 20%. It could potentially go higher, if the federal budget deficit worsens and Congress adopts a tax the wealthy philosophy. The 2 democratic candidates are in favor of a 25% or higher capital gains tax rate.

Finally, the baby boomer retirement issue presents another compelling reason to sell now and retire later. Experts project a doubling in the number of businesses that will hit the market looking for a buyer by 2009. According to the Federal Reserve, in 2001 50,000 businesses changed hands. That number rose to 350,000 in 2005 and is projected to increase to 750,000 by 2009.

As the overall population ages and sellers outnumber buyers, the laws of supply and demand point to an erosion in valuations for business sellers. At this point, the trend looks to be gradual. However, as we have seen recently in the prices of certain stocks and debt obligations, a rush to the exits can precipitate a sudden, calamitous drop in prices.

As I said at the beginning, I had a somewhat narrow view on selling businesses to private equity groups based strictly on the initial company valuation compared to potential strategic buyers. I am now enlightened and can more objectively view the potential outcomes for the business owner that encompass the owner's retirement timeframes and risk reward profile. A private equity firm can provide an initial - secure your family's future - cash out. An industry specialized PE firm with a track record can provide, not just the first bite, but often a very exciting second bite of the apple when you exit together in five years.

Home Equity Lines of Credit

Alright, you've been a homeowner for some 10 years now, and you've decided it's time for improvement and expansion. What is the best way to obtain the funding for home improvement projects? A home equity line of credit is often the most feasible and profitable way to access extra cash for home improvement.

How do you obtain home equity credit? What lenders provide home-equity credit? And who qualifies for home-equity created? All these questions will be answered in the following paragraphs, and hopefully from the information below, you'll be at a more educated consumer.

All the equity lines of credit are obtained based on the amount of equity you have built into your column. If you had your mortgage for over 10 years you have established a considerable amount of equity and should be able to draw on that equity to improve and make repairs on your home.

Fixed rate mortgages or adjustable rate mortgages provide a consumer with the greatest opportunity for building equity in their home while paying for their home interest-only loans, 125 loans, and balloon notes do not help the consumer build equity over a very short time.

Quite often as we shop for mortgage products we don't stop to think about the "down the road" needs we might experience as a homeowner. That's why today's market of interest-only loans and 125 loans do not seem to operate in the consumer's favour. As you make your mortgage payment each month a portion of the payment is diverted to the interest, and the remaining amount is applied to principal; it is through this process that we build 'equity' in our home.

Over the course of the life of the home, say 10 years from now, we manage to outgrow our homes, we manage to overuse our homes and we manage to create a situation that is in need of repair. If you have a fixed rate mortgage or an adjustable rate mortgage you have managed to build the equity in your home and you high on the opportunity to open a home-equity line of credit, provided you have also taken care to protect your credit rating.

The amount of equity of establishing your home and your credit rating will determine the credit limit you receive on a home-equity line of credit. Your lending institution, your local bank, or for whom ever holds your mortgage will be the entity you approach for a home-equity line of credit.

So long as your payments are up-to-date, your credit is good, and you have a substantial amount of equity in your home you will qualify for a home-equity loan that is comparable to an open line of credit. You withdraw from your line of credit as necessary.

If your loan limit is say $10,000, and you need $4000 for plumbing repairs, you simply write a check drawn on your line of credit account to cover the expense and you would begin to pay interest on the loan amount of $4000. Seems to be a very simple way to operate wouldn't you say?

Many of the leading institutions think so thus they created a home-equity line of credit; it's a benefit for the consumer and it's a benefit for the lending institution. The consumer has a quick way to draw on the equity in their home, and the late institution has a great way to make a profit. So what would be the downside of a home-equity line of credit? There doesn't seem to be one.

The only downside we've been able to find, with that of the consent of the purchases the interest only loan, the 125 loan, or any of the many variations from these bases that does not allow for the building of equity as the mortgage is paid. Quite often the consumer does not realize the potential danger when purchasing interest-only and 125s.

But the mortgage lender does, or should. It was for this very reason during the 1920s at the interest only loan was shelved and taken from the market. We seem to have forgotten the lessons learned. For the consumer a home without equity, is a home without protection. A home without equity is not a benefit for the consumer.

Getting a Home Equity Loan

 

Getting a Home Equity Loan

Making the decision to take out any kind of loan is worth thinking about, and knowing your options may help make it final. When you take out a home equity loan, you are really taking out a loan on the equity you have invested in your house. If your house is worth $150,000, and you have a mortgage balance of $70,000, then you have built up $80,000 worth of equity. Potentially you may be able to take out a loan on any amount under $80,000. Some lenders will only give a loan on a percentage of the value of the house, usually about 75 percent.

 

Finding a lender may be easy, but it is wise to shop around before you decide what lender to accept a loan from. You will want to make sure you know what the interest rate is, and any other terms the loan will have. Will the home equity loan be a revolving line of credit, or a lump sum? Do you want all you can get, or just a portion of what may be available to you? What will you use the loan for? Is it considered a risky investment? Will the loan be worth putting your house up as collateral?

 

Answering these and any other questions you may have before you actually take out a loan is important, and may help you decide how much of a loan you need, and what terms you want to try to find from a lender.

 

There are Many Uses For a Home Equity Loan

Looking at the possibilities of how you can use a home equity loan may make the reality of your needs, and desires, more attainable. Home equity loans can be used for a variety of things.

 

Many people have a hard time paying down high interest debt they have acquired. Using a home equity loan to consolidate credit card debt, car loans, and any other loans you may be paying on, can save you money that would have been paid on interest rates. It will also help you be more organized by making it easier to keep track of one loan payment rather than many payments each month.

 

Using a home equity loan to pay off medical bills is another possibility. If you have a lot of medical bills you owe or have been putting off treatment for a medical condition because of a lack of money, taking out a home equity loan can be a great help to get the bills paid, and get the treatment you need.

 

Another thing a home equity loan can be used for is to pay off student loans. Student loans are federal loans, and they usually carry a high interest rate. Using a home equity loan to pay them off may end up saving you quite a bit of money, and help keep your credit rating up.

 

You could use a home equity loan to make your home more energy efficient. Putting in new windows or a high efficiency furnace will help lower your utility bills. Needing to spend less on heating your home will give you more money to spend on other things. Making your home more energy efficient also raises the value of your home, so you may be able to sell at a higher price.

 

Another way to raise the value of your home with a home equity loan is to use it to update your home. Insulating it, putting on a new roof, improving the kitchen or bathroom, is an investment in your financial future. Updates increase not only the value of your house, but they also raise the amount of equity you have placed in your home.

 

Putting on an addition, paving your driveway, or installing a pool are some other ways you can use a home equity loan. These things add to the value of your home, and also make it more desirable to buyers when it's time to sell your house.

 

You could even use your home equity loan to take a long awaited vacation. Using it for recreational purposes may not increase the value of your house, but it would give you some rest and relaxation. This would help remove some of the stress of working and dealing with life on a daily basis. Taking a vacation is an investment in yourself, and can refresh you to the point of helping you think clearly and reduce your stress.

 

Things you may not want to use a home equity loan for

Since taking out a home equity loan requires using your house as collateral, you will want to make sure you are using it for improving the quality of your life, and not taking a high risk with it. Most lenders have standards they follow, and are wary of lending money for things considered a high risk. This protects them from having the loan defaulted on, and it protects you, the borrower, from losing your home.

 

Investing in stocks, new companies, and many other types of investments, is considered high risk. Beginning a new business may be considered a high risk. Taking risks that may cost you your house should be considered at great length. If you want to begin a business, there are other types of loans that may be more beneficial for you. Using a home equity loan for such a venture may end up costing you more than you bargained for.

 

Looking for the best possible deal, and not taking the first loan offered to you, could make a big difference in your finances. Finding an interest rate that will be fair, and terms of the loan that will meet your needs, and help you do what you want and need to do with it, will make it easier to pay it back.

 

Remember, a home equity loan is like a second mortgage, and will mean making a second mortgage payment each month. One good thing about this type of loan is that usually the interest paid is tax deductible, unlike other types of loans you may be eligible for. If you want to read more about the various uses of a home equity loan, visit the FHA website.

Home Equity Loans Canada- Your Questions Answered

In a November, 2007 report, the Canadian Association of Accredited Mortgage Professionals (CAAMP) stated that in the previous 12 months, 17% of mortgage holders took out home equity loans or increased their mortgage. The average equity loan was $35,400.

What are people doing with all this money? Paying down debts, sending the kids to school, investing in their homes - there are many possible answers to that question. If you've ever considered tapping into your home's equity, the following FAQs can help you decide whether home equity loans are the right strategy for you.

What Are Home Equity Loans?

Home equity is the difference between the market value of your home and what you still owe on the mortgage. So if your house is valued at $300,000 and you still have $260,000 outstanding on your mortgage, your equity would be $40,000.

Home equity loans enable you to borrow against that equity. These loans are also known as second mortgages because they are a second loan (the primary mortgage being the first) that uses your house as collateral.

How Much Can You Borrow?

With most home equity loans you can borrow anywhere up to 85% of the amount of your home equity. For the case above, with $40,000 in equity, the homeowner could borrow $34,000.

Some lenders have more generous options, even offering to lend 100% of the amount of equity in your home.

How is a Home Equity Line of Credit Different?

A home equity line of credit (HELOC) is much the same as a standard line of credit, but it uses your home's equity for security. With a HELOC you can typically borrow up to 90% of your home's equity. With $40,000 in equity, you could obtain a HELOC for $36,000.

With a HELOC, you do not necessarily have to use all of the credit at once. You can use it as needed and pay back what you borrow, just like a standard line of credit.

On the other hand, home equity loans are one-time, lump sum loan. If you need more money, you'll need another loan.

The general guideline is that a HELOC is best for those who need access to varying amounts of money for ongoing expenses, whereas a home equity loan is better suited to those needing a specific amount for one large expense, like a home renovation.

What About Interest Rates?

Home equity loans typically have fixed interest rates, while HELOC rates are variable. The interest rates for both are typically pegged to an institution's prime rate, and are often significantly lower than those charged for vehicle loans, credit cards and personal loans.

What is Mortgage Refinancing?

With refinancing, you pay off your existing mortgage and obtain a second mortgage for a lower interest rate. With a "cash-out" mortgage or refinance you can borrow more than what you owe on your mortgage. You can then take the extra money and use it for expenses like tuition, home improvements and so on. Refinancing may include costs for mortgage fees and prepayment penalties.

What are the Pros and Cons?

On the plus side, home equity loans provide low-cost credit for important expenses. In extreme cases, the risks are that the home market slows and you end up owing more than the value of your home, or that you overspend and default, which means the loss of your home.

For many people the pros outweigh the cons. To be sure if a HELOC or loan is right for you, it is best to consult with a mortgage professional.

Fixed Rate Home Equity Loan

As the owner of your own home, you have a very important resource available to help you weather many financial storms including the current global credit crunch. With the credit crunch in the news on a daily basis, it's a good time to take a look at the equity tide up in your biggest asset - your home. A home equity loan or home equity line of credit (HELOC) is a loan, which is basically granted using your house's value as collateral. The size of the loan will depend on the difference between your current mortgage value and the current value of your home.

A fixed rate home equity loan is a great way of freeing extra cash which you can use for a variety of purposes including debt consolidation, wealth creation through good sound investment of capital, education, home improvement etc.

But before you decide on a fixed rate home equity loan or on a variable rate home equity loan its best to compare the pro's and cons of each type so that you can make the right decision for you.

With your home equity loan being one of the biggest long term financial decisions you'll make, its best to get the decision right from the very beginning. Getting it wrong could literally cost you thousands.

The question is whether to consider fixed rate home equity loan or a variable rate home equity loan.

Fixed Rate home equity loan

A fixed rate home equity loan is a loan where the interest and thus the repayment are fixed at a certain interest rate for a certain period. The period varies but can be anything from two to five years to the length of the loan. The pros of a fixed rate home equity loan are:

• They provide certainty with regards to payments


• You can budget easily if you sign up for a fixed rate mortgage


• Even if the interest rate climbs, your payments remain constant

Cons of a fixed rate home equity loan include:

• Your payments do not decrease if the rate decreases


• You cannot take advantage of market up and downs


• Initial rates on the fixed rate mortgages are usually higher than variable rate deals.

A fixed rate home equity loan can help to cap your payments and they make it easier to budget. The best time to take advantage of a fixed rate home equity loan is when the rates dip a little. You can then refinance your home equity loan with fixed rate home equity loan and take advantage of the fact that rates will climb.

Variable Rate home equity loan

As opposed to fixed rate home equity loan, the interest on a variable rate home equity loan changes all the time. This means that when interest rates climb, so does your home equity loan repayment.

The pros of this type of home equity loan is that if rates fall, so does your repayments, but unlike fixed rate home equity loan, it is very difficult to budget for payments which fluctuate. This type does however allow you to take advantage of changing market conditions.

If the current rates are high, then its best to go for a variable interest rate loan and then once the rates fall, to try to change it to fixed rate home equity loan.

For more information please visit http://www.low-rate-payday-equity-home-loans.com for more information

Pros And Cons Of Home Equity Loans

Home equity loan is one among the most popular home loans available today. It is a second mortgage loan with characteristic properties of a secured loan. The popularity of the home equity loan has attracted many people to home equity loan. In general, equity loans does not have arise much complaints from the people. However as any other coin, home equity loan also have two sides. Hence, the detailed analysis of the loan is essential to differentiate the features of the home equity loan. The cross analysis of the pros and cons of the home equity loan helps to avoid stepping in to the home loans with false expectations.

The pros of the home equity loans include the advantages that a borrower can enjoy from the home equity loan. The benefits of the home equity loan usually outweigh other secured and unsecured loans since it is a risk free loan for the lender. The home equity loan provides maximum amount, in proportionate to the value of the equity. For good houses situated in the real estate booming locations, home equity loan lenders used to provide high appraisal of even 125%. In most cases at least 80% appraisal is always provided. The attractive interest rate is another advantage of the home equity loans. Usually the interest rate of the home equity loan is selected in fixed rates.

Among the pros of the home equity loan, the most pronounced benefit is the tax deduction. The amount taken as home equity loan below $100,000 is exempted from the tax payment. Hence, the equity loan can be used to raise money for any purpose such as emergencies, debt consolidation, medical loan, home improvements, education or any personal reasons. The repayment schedule of the home equity loan can be conveniently selected as 10 years or more, which can be even extended up to 30 years. Moreover, the home equity loan processing has become easy and less time consuming with the introduction of internet and online lenders. The verification of the title deed and the credit score are usually the time consuming steps. However, in the online processing these verifications has become limited and the home equity loan approval is done with in minimum period of time.

However the home equity loans are not devoid of cons. One of the major cons associated with home equity loan is the risk of losing your favorite home, if you make any default in the payment. The lenders will not be bothered much about the repayment as they will be focused to foreclosure the property. Hence the borrower is advised not to take large amount as home equity loan. Home equity loan is also not advantageous for persons, who are in the beginning of their career since they cannot easily shift their position, if they have a liability. However, the people in the proximity of the pension also cannot manage a long run home equity loan. In the home equity loans, the borrowers have to keep in mind the fact that the long repayment schedule will cost you more interest. To add on, if you are unlucky the home prices will slashes down and when you are about to sell the home, it will be a loss.

In brief analysis of the pros and cons of the home equity loan, it is clear that home equity loan will be advantageous for the larger loan amount. However, you have to be careful about interest rate and other conditions involved in the deal.

Learn About Equity Index Annuities

'Save for a rainy day' is a wise old saying and there are many ways you can prepare for the sunset of your life. Investing in an annuity is one way. An annuity is a long-term, interest-paying contract offered through an insurance company or financial institution. An equity indexed annuity is an annuity that earns interest that is linked to a stock or other equity index. Depending on how those stocks fare will determine what you gain. The equity index annuities, as in any kind of investments, have to be kept untouched for a long period. The typical time is a minimum of 7 years. This will ensure that you get the full benefit of having invested in an equity index annuity.

The equity index annuities are basically an option of investment that is offered by insurance companies. They actually provide you with the benefit of investing in the stock market without the associated risks of losing your money. So, in an equity index annuity, your principal is never lost and even in a worst case you may take some interest back home. The flip side of this however is that even if the stocks that the equity index annuity is invested in gives high returns, you will not receive the full returns but just a percentage. So you do not get the maximum returns for your equity index annuity but just a part.

This is however the compensation that the insurance companies who offer you the equity index annuities receive, for providing you with a safety net throughout the term of the annuity. The percentage of returns (i.e. the gain of the index) that your equity index annuity brings you is determined by the participation rate. This rate is pre-decided and varies and to know this you have to read the fine print prior to signing on the documents. The general participation rate offered for most equity index annuities is between 70 to 90 percent.

The equity index annuities are therefore seen as a conservative and prudent investment.
They became quite popular during the previous bullish run in the market and insurance companies saw them as an excellent means of combining the security of a guaranteed return with the boom of the stock market. All equity index annuities offer a minimum interest rate and its value also does not fall below the guaranteed minimum percentage of the premium paid i.e. 90 percent at least.

However to achieve maximum benefits, your equity index annuities should not be withdrawn before the term. If you do even a partial withdrawal it will definitely affect the interest you receive. Like all investments, this is best kept for a long term. This will also help your equity index annuities even out and recover if the index plunges. As we know the stock market is volatile and this needs to be kept in mind when investing. Also there are definite withdrawal penalties that you would have to pay as well.

How then do the insurance agencies benefit from offering equity index annuities? The insurance companies reinvest the premium amounts that you pay and this is usually invested into bonds. Since the participation rate is fixed, they have to pay only those set rates of interest to the investors of the equity index annuities and the insurance companies profit the balance.

Equity index annuities are generally affiliated to a particular stock market index such as the S&P 500 or the Dow Jones Industrial Average. However as the equity index annuities combine features of a typical insurance product with the traditional security they do completely fall into each of those specific categories.
As a typical insurance product you are guaranteed minimum return and in terms of securities your investment is linked to the equity market. However it all depends on the features that your equity index annuity provides and it may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.

So then how does one know which equity index annuity is best for oneself? The only way is to find out as much as you can about the equity index annuity before you decide.
Ask a lot of questions like which stock market index does the equity index annuity use? What participation rate is being offered to you? Are there any hidden charges in terms of any fees or deductions payable? You have to run through a number of equity index annuity offerings before making your decision.

So save for a rainy day and do it the equity index annuity way!

Colorado Home Equity Loans

Hi all,

I want to share some information with you regarding the benifits of colorado home equity loans.

Home equity loans are considered secured loans. A Colorado home equity loan will both allow you to access your home's equity as a owner. A Home Equity Loan has become an increasingly popular way for consumers to borrow money, especially with the continued increases in interest rates on credit cards. A home equity loan is a type of loan in which the borrower uses the equity in his home as collateral. Colorado home equity loans are also called as second mortgage loans. To get a Colorado Home Equity Loan The interest on a second mortgage is usually tax deductible and also payment schedule can be arranged over a specific amount of time, which allows the home owner the convenience of scheduled payments. If you have a great mortgage interest rate and don't want to refinance your existing mortgage, a home equity loan might be the way to go.

A home equity loan is a second loan that you take out in addition to your first mortgage . It allows you to get cash from your home's equity. These loans are sometimes useful for families to help finance major home repairs, medical bills or college educations. Colorado Home equity loans offer several advantages. Interest rates tend to be lower over other types of consumer loans. For more information on Colorado Home Equity Loans . Your home equity is the percentage of the home that you own. Equity means the difference between the current value of the home and the amount you still owe on your mortgage. you can borrow money against that equity in the form of a second mortgage or home equity loan. Home equity loans come in two types, closed end and open end.Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Banks and other mortgage lenders generally like issuing home equity loans. For most people, their home is their biggest single asset. The borrower benefits from the lower interest rates offered with "safer" loans.

Compare the interest rates from different mortgage lenders and make a decision. So many lenders will approach you but try to get a loan from a reliable mortgage company which will offer you the lowest Colorado home equity loan rates. Colorado Home Equity Loans are most commonly second mortgage loans, although they can be held in first position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. In the United States, it is sometimes possible to deduct home equity loan interest on one's personal income taxes.

All About Home Equity

What is Home Equity?
Your home equity is the appraised value remaining in your home after you subtract the remaining balance you owe on your existing home mortgage(s). It can be thought of as the part of the home you actually own instead of the bank: the part you've paid for so far.

It isn't difficult to build equity in your home, and chances are if you've owned your home for a while and have been making your regular mortgage payments, you probably have built a considerable amount of home equity already. Though the housing market rises and falls in cycles, the overall tendency is consistently upward. In other words, property values tend to rise over the long term.

How Can Home Equity Be Used?

Once you have equity in your home, you can start to use it to fund nearly anything you want or need. Having equity in your home puts you in a powerful position, as you can use that equity to qualify for credit and borrow money. Buy a new car, take that dream vacation, fund a college education, make renovations and improvements to your home. Whether to pay for an emergency or finance a dream, there are two primary ways to tap into the wellspring that is your home equity: a home equity loan and a home equity line of credit.

What Are Home Equity Interest Rates Like?
A good question to ask before borrowing money from any source is: how much is it going to cost in the long run? Because your home is being used as collateral on the home equity loan or home equity line of credit, the risk for the lender is considerably lower, and therefore interest rates on home equity loans and home equity lines of credit are usually lower than the average interest rate on a credit card.

Home equity loans and home equity lines of credit are, however, usually higher than the interest rate on the average fixed rate mortgage. And in general, home equity loans usually have lower interest rates than home equity lines of credit.

What Are Some of the Other Benefits of Home Equity?
As if borrowing money weren't advantage enough, home equity offers a bevy of other benefits as well, including:

* tax advantages (in many cases, interest paid on home equity loans and lines of credit are tax deductible)

* you can use equity to build more equity (if you tap into home equity to make improvements to your home, you raise your home's value, thereby building more equity)

* debt consolidation (you can use it to pay off higher priced loans or debt)

Way to Deal With Equity & Trading

Preparation for equity trading

A farmer in remote Bihar borrows heavily from his zamindar to pay the dowry for marrying off his 11-year-old daughter (an extreme form of debt that we know will turn the farmer into a bonded labourer forever).

A newly married yuppie buys a car, TV, fridge on his credit card?(another form of debt that the yuppie hopes to repay with his zooming salaries).

In these instances we see that ?debt? has been incurred to spend beyond one?s current means. We learnt last time that typically whatever we earn either goes into buying food, clothes, or assets like a TV, car, etc. Or we save with the intention to use our savings during our retirement or buy a house, etc. In other words, we spend our earnings today or save it to spend it later. ?Debt? brings in a third element?while we postpone consumption when we save, we spend future savings when we borrow! In simpler terms, ?savings? and ?debt? are like day & night?they can never exist together unless it is twilight. Take the case of Nagesh, who we met up with last time. Nagesh is a very practical person who has learnt from the tough times in his life. Nagesh, just like any other human being, has dreams of buying a car, a big house for his family, but realises that he will only be able to get there in stages as his current earning capacity is too limited. He has been keeping his desires in check while continuing to save regularly and investing a part of it in shares of good companies. Nagesh bought a car last month by selling part of his holding in Zee Telefilms (about 100 shares @ Rs3500 that he had bought over a year back @ Rs100).

Manish has been Nagesh?s colleague for the last four years. Manish believes in living life king size. In his very first year he exceeded the credit limit on his credit card. He has been paying through his nose, shelling out interest at 3% per month on his credit card outstandings. Two years back, he availed of a car loan to buy a Maruti 800, at a monthly installment of Rs8000 when his post-tax salary was just Rs14,000! Last year, envious of Nagesh?s newfound wealth in shares, he decided to dabble in shares too. His broker recommended Blue Information Technologies Ltd. as a hot tip that would double in 3 months? time! Full of fervour, without even checking the background of the firm, Nagesh pledged his wife?s gold and borrowed to buy this stock at Rs150. A week later, he discovered that the stock had fallen 35% from his purchase price. When he called up his broker, he was aghast to find out that the stock had been suspended. His interest meter was ticking on the money he had borrowed while his principal was down the tube. Talk of the power of compounding!

Moral: Never stretch borrowings to invest in the stock market. Shares are long-term investments that cannot be matched with short-term borrowings. Ideally, one should repay all borrowings and then invest the surplus in equities. So, when we are debt free, we are ready to invest in equities! By the way, one is never too old or young to invest as long as one understands the investment one makes.

OK, we have understood that in the long run equities offer the highest returns. We have also learnt that one can invest in equities any time provided one has surpluses after repaying debt and meeting one?s expenditure! But how much do we invest?

How much depends on two criteria. One, the risk profile of the investor and two, the liquidity requirements of the investor! Now that we know Nagesh, his father and friend Manish well, let us understand this better through their actions.

Risk profile! Yes, let?s face it. No equity investments are free of risk. There is no such thing as a free lunch, mind you! There are a whole basket of risks to contend with and we will understand all of them very soon. For now, we need to appreciate that there are risks of losing. Looking at our three personalities, we can straight away rule out Manish. He can?t afford to take any risks as he is buried deep in debt and can?t afford to lose a penny! Nagesh on the other hand is just 35 years old and has a long bright career ahead of him, so he can afford to take greater exposure in equities and in slightly risky shares too (for instance, some stocks from our ?Emerging Star?, ?Ugly Duckling? and ?Vulture?s Pick? categories). Nagesh?s father, on the other hand, has retired and has no source of income other than the savings he has amassed. So he will be able to afford very little risk. Hence, he should be looking at stocks in our ?Evergreen? or ?Apple Green? categories to choose his investments (which is why, if you remember, Nagesh had suggested HLL to his father).

Let us now move on to liquidity. Liquidity requirements signify the need of cash to meet one?s payment obligations (and don?t have anything to do with human beings? fluid intake). Manish needs all the money he can get as he has to meet so many of his loan obligations. Nagesh on the other hand has an idea of his monthly expenses so he has a better fix on his monthly cash requirements. He also needs to maintain a certain amount of cash in liquid savings (savings bank deposit, etc.) just in case there are some unforeseen medical expenses to meet or an unplanned visit to his father?s place. Beyond these requirements, he can look at investing in equities. Nagesh?s father, on the other hand, has to meet his entire expenses from his savings and would have large requirements for immediate cash. Hence, he can allocate a smaller portion of his savings to invest in equities.

Judging the actions of the small world of people we know, we have realised that risk profiles vary with age, current financial position, even one?s own personality. Liquidity requirements too depend on similar factors. These two criteria will be different for different people, but one should not lose sight of one?s risk profile and liquidity requirement while investing in equities.

Way of making equity as your own

what we now need to figure out is how to evaluate which company to buy. I?m afraid this is where all those fancy sounding valuation tools come in? PE, RONW, ROCE, EVA, etc. Hey, hang on, it?s not as bad as it sounds. Stick around and we?ll demystify all the above in a jiffy.

But before you get into the complexities of the various valuations tools you can use and how you calculate them, we must table a fundamental principle:

?Investing in equities is akin to owning a business.?

Let?s now explore the full ramifications of this principle.

When you put your money in a bank deposit, you take a risk (albeit small, depending on which bank). In return, you get paid a small interest.

The bank takes on a higher degree of risk and lends that money at a higher interest rate to some businessman, or to a credit card holder who wants to buy a diamond ring for his wife. The bank pays your interest out of the money he earns from the businessman. Or the doting husband.

Whereas, when you buy shares in a company, you are not lending money to the company. By providing capital for the company, which is represented by an equity share, you are participating in the ownership of the company. Clearly, your risk is much greater in this case. Because, in this case, you are entrusting the company with the job of managing risk for you.

Relatively, the risk in lending to a bank is limited. For one, most of our neighbourhood banks are nationalised. So bank deposits are perceived to be backed by the government. There is little soul searching to be done as to which bank to choose. Even in doing so, the highest priority is accorded to a Nationalised Bank purely on the safety parameter. Obviously, when you invest in equities, even this notional sense of security, of a government standing guard over your money, isn?t available to you.

What kind of business would you like to enter?

Let?s look at this another way now. Let?s assume you want to invest your money into a business. How will you decide what kind of business to enter?

For starters, it should display the potential to earn you a return in excess of what the prevailing rate of bank interest is, right? Now you need to ask yourself what would be the essential factors in determining this return. And apart from the return angle, what qualitative factors should you be looking for?

In the long term, we all look for security. Business, being an entity, is also entitled to aspire for the same. The ideal business would thus have to have horizons where profits can be sustained. Like we mentioned above, there are external factors that determine the direction and growth of the activity. All this would need to be factored into a business plan that would have to sustain itself and grow over a period of years. Of course, on an ongoing basis, we would definitely have to get a feedback on the success of the business. Operations would have to be evaluated from market feedback, while the financial statements would give a view of the profitability of the concern.

The same concepts apply to stocks

Now, here?s the punch line. Everything we discussed above doesn?t apply only to running a business. The same concepts apply, even if you just own shares in the company.

We all know of a document called an annual report. This document is the most basic source for information available on the company?s operations. In the annual reports, the directors dwell, at times in length, explaining the nature of operations and the external environment surrounding the business and how it affected the company during the year.

If you take the additional effort of finding out the positioning of the company?s products in the marketplace, it would give a fair idea of the company?s reputation in the field it operates. All this with the objective of figuring out how stable the company?s operation is.

The company?s progress can be tracked periodically over close intervals of 3 months. This is through quarterly financial statements, the publication of which has been made mandatory by the regulatory authorities.

Next comes the question of management issues. The common question that pops up in this context is: ?How do I externally control the business if I do not have a say in the management??.

Ok, let?s assume that you are now running the business you chose. Can you, a single individual, handle all functions of the company? For a while, maybe. But once growth sets in, it would be humanly impossible to manage all the functions of an economic activity, viz. marketing, finance, procurement, etc. That?s when your business will need to morph from outfit to organisation status. Wherein the various functions are distributed across individuals, and finally the same is translated into a unified activity.

Similarly, as a shareholder, you end up delegating authority to others to run the organisation you have a stake in. Imagine Mr Narayana Murthy (Infosys), Mr Dadiseth (HLL) and Mr Anji Reddy (Dr Reddy?s) reporting to you. That?s exactly how the cookie crumbles.

The company whose equity base you have participated in is answerable. To you, as well as other shareholders of the company. Thus, while you as a joint owner have delegated the operations of the company to the professional managers and the employees, the management in turn is responsible to its shareholders. The management communicates through the balance sheet and the AGM, where shareholders voice their opinion on the performance of the company.

Infact, shareholders can actually participate in constructive criticism of the operation of the company.

Equity is enigma for most of people

If one were to conduct a survey to determine how people saved for their retirement, one would typically get the following responses...

?I put my money in NSC, post office schemes; they double in seven years!? (By the way, HLL in the last seven years is up seven times!!)

?I am too lazy, I leave my money in term deposits with the bank!? (Certain to retire as a pauper!)

?I am clever, I keep deposits with finance companies and co-operative banks. I make upwards of 20%.? (He forgot to mention that a few of them are like CRB! Forget the returns you will not even get your principal!!)

A very rare response would be: ?I invest in equities. I bought Infosys @ Rs500, Zee Telefilms @ Rs220?? (Anybody cares to do the sums for him?!)

Equities, or shares as they are popularly known, have been an enigma for most people. A majority of the middle class in India considers it akin to gambling. A majority of the rest is fascinated by the volatility and the short-term money-making opportunities and misunderstand equities to be a ?get rich quick? scheme. There are very few people who understand that equities offer the highest returns in the long run, adjusted for inflation or even otherwise. Take the case of Nagesh...

Nagesh has had a very conservative upbringing. However, he moved out of his home to pursue his higher studies and his eyes opened! He has been working with a leading MNC as a marketing manager. He has been wisely investing in shares for the last five years, relying on his broker?s advice after doing his own homework. On the other hand, his father worked all his life in a PSU and put all his savings in NSC and Life Insurance. He has retired today and has just realised that all his lifetime savings cannot help him lead a comfortable retired life. Nagesh is now trying to help his father out...

Nagesh: Appa, even now it is not too late. You must invest a portion of your savings in equity. You are getting disheartened because you want to live off the meager interest earnings on your savings. If you put a portion of the money in, say HLL, your money will double in 3 years, quadruple in 5 years!! Appa, equities have the ?power of compounding that is unmatched?.

Appa: Equity is very volatile. After you told me last time, I have been tracking the Sensex on Star News. It goes up two days then there is some political uncertainty and it falls. Sometimes it falls without any reason or otherwise goes up 15% in four days. I cannot handle it. At least here, my principal is safe and I get a fixed return.

Nagesh, if you use the same Sensex as a benchmark, then the index was 1220 in September 1990 and currently trades at 4800 in September 1999, up four times in 9 years! Even if you had put in money at the height of the market frenzy in 1992, you would have still made money. The market benchmark is just an indication; the concept is to invest in specific good companies. Think Company, Appa, and don?t let the short-term market volatility scare you! In September 1990, HLL was trading at Rs115, while it trades at Rs2500 levels now! 22 times in 9 years!!

Appa: Even then, why put my savings in risky equities?

Nagesh: An equally important thing to understand is: ?Why does one save?? One saves because the productive span for any human being is a small portion of one?s entire life. I may live for 80 years but I can only work between the ages of 24 and 60. Hence, it becomes important during our productive lives to earn surpluses and save them for the period when we can?t be productive and earn. Having said that, Appa, you would also recognise that it is important to retain the purchasing power of our savings. In other words, we all know that we used to purchase grains at Rs2 per kg 5 years back, while we pay Rs10 per kg for the same now. The price will keep on increasing as the population living off a fixed area of land increases. Hence, it is also important that whatever we save now at least fetches us an equal quantity when we retire...have I lost you?

Appa: No, I was just thinking. You are right. I deposited Rs10,000 seven years back in NSC and I just got Rs20,000 now. Seven years back, I used to get vegetables for Rs25 and it used to last for a whole week and then we were four of us. Today, I buy vegetables for Rs100 and it barely lasts for a week though there are just the two of us!

Nagesh: Exactly. That?s why people used to buy gold and land to protect their savings from inflation. However, those were the days when communities were small and agriculture was the only activity. As population grew, needs grew and there was a compelling need to improve efficiency. Hence, factories came up to exploit economies of scale. To cut a long story short, investment in productive assets is the best way of preserving savings and creating wealth. Equity is the most productive asset.

Appa: What is the connection?

Nagesh: Equities or shares represent ownership of businesses that own productive assets like plant & machinery and intellectual capital to produce more goods. On the other hand, when you put money in deposits or lend directly, the money ultimately finds its way to purchase productive assets as companies borrow to fund their business! Just like we save to take care of our retirement, productive assets are created to meet greater demand for goods in the future, because of increasing population and its ever increasing needs. Who ever borrows to fund the asset hopes to make more money on his equity than what he pays for on his borrowings. So, savings in deposits or any other fixed income instrument is sub-optimal! Hence, intuitively too, equity has to make lots more money in the long run than any deposits, because there will be no borrowings if the equity owner realises lesser money!!

Appa: All that is fine. But some companies don?t do well?

Nagesh: Obviously they are risky as certain businesses find the going tough. But collectively, they are not only very essential but very profitable. Hence, the returns on equity are always higher to compensate for the additional risk. Risk is a part and parcel of life. There are so many bus, rail and two wheeler accidents, but that doesn?t mean that we prefer to walk everywhere. Even if we decide to walk, we run the risk of being hit by another vehicle! One should only take care to invest in the right businesses, which have assets capable of earning good returns. Hence, these will have to be businesses that have a bright future. Nobody thinks of buying a bullock cart now!...

Home Equity Lines of Credit and How They Work

You've certainly heard the ads on television that tell you to 'tap the equity in your home' when you need fast cash for home renovations, emergencies and even family vacations. There are two main types of home equity loans, a standard home equity loan, and a home equity line of credit. Before you decide to tap the equity in your home, you should understand what home equity debt is and how you can use it to finance the important things in your life.

Borrowing against your home equity

Most homes are purchased through mortgages, a loan taken from a bank or lender and then paid back over a course of ten to thirty years. As you pay back that money, a certain portion of what you pay goes to the bank as interest, and the rest is applied to the principal. The amount paid on the principal builds 'equity', which is, in simplified terms, the amount of your home that you own. The amount of equity you have in your home can be used as collateral for a loan to finance college, pay for a wedding or make home improvements, among other things.

A home equity line of credit is not exactly a loan. Rather, it's a promise from a bank or lender that they will loan you money up to a specified amount when you need it at the interest rates agreed upon. Unlike a home equity loan, where the bank loans you a chunk of money and you pay it back, a home equity loan of credit allows you to borrow money as you need it, like a credit card.

Using a Home Equity Line of Credit

For example, if you take out a home equity loan for $10,000, you'll get a check from the bank for $10,000 all at once. The interest clock starts clicking as soon as you sign the papers, and if you find that you need to borrow more money, you will need to apply again. If you really only need $2,000 of that money, you'll still be paying interest on the entire $10,000 because you have the use of the entire $10,000.

With a home equity line of credit, the bank promises to lend you up to $10,000 over the next however many years. You haven't actually borrowed any money when you sign a home equity line of credit agreement. It's more like signing a credit card agreement. You won't owe any interest until you actually use your home equity line of credit to borrow money. Once you've established a line of credit, if you find you need $2,000, you can draw that money from your home equity line of credit. At that point, you'll owe the bank $2,000 and will start paying interest on a $2,000 loan.

There will still be $8,000 remaining on your line of credit. In other words, the bank has promised that it will loan you up to $10,000 during the term that the line is in effect, so you can still borrow up to another $8,000 as long as your loan remains in good standing. Even better, as you repay your loan, that money becomes available to borrow again, just like with a credit card.

So if you use $2,000 of your line of credit, you'll have $8,000 remaining. If you then pay back $500 of it, you'll be able to borrow up to $8,500 if you need it. You'll only pay interest on the amount that you have actually borrowed, but you'll have up to $20,000 available to you to use without having to apply for a loan every time you need one.

Why choose a home equity line of credit?

Establishing a home equity line of credit before you need one can be an excellent idea. Unlike a standard home equity loan, you won't be paying any interest on the money that's available to you unless you actually use it, and you'll only be paying interest on the amount that you actually borrow rather than on the entire $10,000 amount.

There are a few circumstances where a home equity loan makes more sense than a line of credit. Since standard home equity loans generally carry lower interest rates than a home equity loan of credit, it makes sense to use a home equity loan if you will be paying out all or nearly the entire loan amount in a short period of time. In other words, if you need $10,000 to pay for something up front, then it makes more sense to take out a home equity loan for $10,000. You'll pay less in interest that way.

If, on the other hand, you predict that you'll need about $10,000 to complete a project over the next year, but won't need all of it at once, a home equity line of credit makes more sense. While your interest rate on the line of credit may be slightly higher than on a standard loan, you'll only be paying interest on the amount that you actually owe each month.

Home Equity Line of Credit

 

To borrow a sum of money against your equity is popularly known as home equity line of credit. Home equity line of credit loans are a form of credit using one's home as collateral. Unlike home equity loans in which a homeowner receives a one-time lump sum of money, home equity lines of credit involve an approved credit limit that homeowners borrow money from. More and more financial lenders are offering a home equity line of credit. What is a home equity line of credit? The simplest definition is that it is a type of credit line that allows the property owner to obtain a loan using his home as collateral.

Since for most consumers homes are the largest asset they own, a home equity line of credit is used mainly for major expenditures such as home improvements and renovations, education, medical bills and others. A home equity line of credit is becoming more popular as property values climb, and consumers find out how they can manage their personal debt more efficiently.

How does a home equity line of credit work? A home equity line of credit uses the equity in your home as collateral for your loan. If you are planning to apply for a home equity line of credit, it is best to consult an expert in the field, so that you can discuss it in full detail. Lenders who offer home equity credit lines will be eager to explain every aspect to help you understand it and make the best decision.. Study thoroughly the credit agreement, as well as the terms and conditions of various plans. Take note of the annual percentage rate or APR, as well as other particulars.

If you are in need of money, Equity Line Of Credit might be a good solution to find a credit. First of all, they offer you big cash at comparatively low interest rates. But at the same time equity credit line takes your home as security. This step by the financial companies may put your home at risk. If you are unable to refinance within the specified time, you might end up losing your home. At the same time, home equity line of credit offers you easy access to money at times of need. So incase you are confused and cannot decide if home equity line of credit will benefit you in the long run, it is recommended that you consult a financial adviser before applying for a home equity line credit.

Home Equity Line Of Credit provides detailed information on Home Equity Line Of Credit, Home Equity Line Of Credit loans online, Equity Line Of Credit, California Home Equity Line Of Credit Calculator and more.

Resolve your Debt Issues With Home Equity

Research result shows that credit card debt is the main debt problem for most of debtors. Credit card carries high interest rate, if you continue delay your credit card payment or continue to pay only the minimum due amount, it will quickly roll up the total debt and drag you into a serious debt trap. Hence, credit card debt must be resolved fast to avoid making your debt situation worse. If you have build up your home equity, you are at a good position to get your debt issue resolve by consolidating your credit card debt and other high interest debt with your home equity.

Why consolidate debt using your home equity?

There are at least 3 good reasons to consolidate all your debt with home equity:

1. Lower interest rate. As compare to other loan, home equity loan is comparatively much lower that other loans, which make it easier to be paid off. If you continue repay the same amount you pay now and the interest rate has been lower, meaning that you pay more toward the principal and making your debt to be paid off faster.

2. The interest of your home equity loan is tax-deductible; you save on interest pay for home equity loan from the tax-deduction.

3. Lower monthly payment. If you find hardship repaying your current debt repayment, then selecting longer repayment term with a home equity loan will help to lower the monthly payment so a level that is affordable by your current financial situation. Be aware that by taking long period of loan term, you will be paying more in total interest.

Consolidation Debt Using Home Equity

There are three ways to consolidation debt using home equity: Cash-out Refinance, Home Equity Loan and Home Equity Line Of Credit.

Cash-out Refinance

In this method, you are getting a new mortgage with the amount high than your current mortgage and use it to pay off your current mortgage and have enough balance to clear your credit card debt. For example, your existing mortgage still remains $100,000 and you owe credit card debt of $12,000; you will need to refinance your existing mortgage to get $112,000 of new loan to pay off your existing mortgage plus the credit card debt.

Home Equity Loan

Home equity loan is a second mortgage which you use you home equity to pledge for a loan. For example, your home market value is $150,000 and you still owe for a mortgage of $100,000; this means you have a home equity equal to $50,000. You can apply for a home equity loan up to the value of home equity, in this case is $50,000. But normally, lenders will only approve a home equity loan up to 80-85% of your home equity.

Home Equity Line of Credit (HELOC)

Credit card has credit limit so do the home equity line of credit, the difference between these two is home equity line of credit use your home equity as the revolving line of credit. Based on your home equity, lenders will pre-approves you with a credit limit where you can withdraw the amount up to that credit limit. . In the home equity line of credit, interest only count on the amount being draws out.

What You Should Not Do With Your Home Equity

Although home equity is a good option to resolve your debt issue, but you will put your home at risk if you default the home equity loan repayment. Hence, don't get the loan up to the maximum value of you home equity can provide you because you are adding more debt into your account by doing that. Use your home equity to apply for loan that enough to repay your consolidated debt. And remember to repay the home equity loan on time so that you won't lose you home because of foreclosure.

In Summary

You can always convert home equity to pay off your consolidated high interest debts and save with lower interest and lower monthly repayment. But be aware for the risk of losing your home if you fail to make repayment. Hence, you need to put your repayment plan in place to ensure you won't miss any repayment schedule of your home equity loan.

Great Benefits of A 125 Home Equity Loan

Do you know what a 125 home equity loan is? I'm sure you know all about traditional home equity loans where you can borrow money using the equity in your home as collateral for the loan. These home equity loans provide many people with cash for a wide range of uses. Of course there are other types of equity loans besides the traditional home equity loan, and the 125 home equity loan is one of these options. A 125 home equity loan lets you get even more cash than usual based on the equity in your home.

Let me first define what equity is. Your home equity is quite simply the difference in what you owe the bank still and the value of your home. For example, if your home is valued at $300,000 and you still owe $150,000 to the mortgage company then you have $150,000 in equity. One nice benefit is that in a rising real estate market you gain additional equity simply through the rise in your homes value.

Traditional Home Equity Loans vs. 125 Home Equity Loans
In a traditional home equity loan you are offered a loan that does not exceed the amount of equity present in your home. So, if you have $25,000 in equity you're able to get a loan for $25,000. This loan can be used to pay for anything you want from home improvements to education or even a vacation if you choose.

The difference between the traditional home equity loan and a 125 home equity loan is in the amount you can borrow. With a 125 home equity loan you can borrow up to 125% of the present equity value in your home. In this case if you have $25,000 equity in your home you would be offered a loan of $31,250. In the past many lenders would shy away from this type of loan since part of it is unsecured and increases their risk. These days however more and more lenders, especially online lenders are offering 125 home equity loans. If you're thinking of applying for this type of loan you should know that a high credit score will help you greatly in getting approved.

125 Home Equity Loan Warning
The 125 home equity loan is especially suited for those who need access to a large amount of money. If you are thinking of using the money to start a business or take on a large home improvement project a 125 home equity loan could meet your needs quite well.

Keep in mind that as long as home values continue to rise or at least stay stagnant you're in little danger from this type of equity loan. However, if your home value declines your equity will decline as well and you could actually end up owing more than your home is worth.

It really depends on your needs and circumstances to determine how much sense a 125 home equity loan makes for you. As I said previously, it can be very useful for those starting a business, particularly if you expect the business to have good cash flow. It is also useful for large home improvements since they are likely to increase your home's value and also your equity. Just be careful that you don't overextend yourself when taking a 125 home equity loan.

What is a Home Improvement Loan?

A UK Home Improvement Loan Can Give You The Home You Want.Looking to increase the value of your property A Home improvement Loan could be the easiest and cheapest way to make improvements to your home.Are you planning an extension to your home would you like to have double glazing a new conservatory patio or a new heating system or are you undertaking the general up keep of your home but finding it hard to pay forA home improvement loan may well provide your solution. The loan can be repaid over