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2nd Mortgage Loans for Making Home Improvements

For many years, home equity loans have been widely popular for making home improvements, also known as home improvement loans, are second mortgages that come in several financing tools:

  • A home equity installment loan involving a lump sum loan. These equity loans are typically fixed-rate loans, but adjustable-rate and interest-only loans are also available. Borrowers make immediate principal and interest payments on the full loan amount.
  • A home equity line of credit (HELOC) that works like a credit card during the initial draw period of typically 5 to 10 years allowing borrowers to draw repeatedly without applying for a new loan. These are variable-rate loans with the interest consisting of an adjustable rate tied to a publicly available index (e.g., prime rate) and a fixed lender-specified margin. Borrowers are allowed to make interest-only payments during the draw period. At the end of the draw period, the loan amortizes into a standard adjustable rate mortgage (ARM) where the borrowers makes monthly principal and interest payments.
Home Loan Type Property Type Credit Rating
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No Equity 2nd Mortgage Loans
Home Equity Lines of Credit
Home Improvement Loans
Quick Loans for House Repairs
Fixed rate Home Equity Loans

A few years ago, the most popular home equity loan for first-time homebuyers is the 125% LTV (loan-to-value) loan because they generally don't have enough equity in their homes for standard second mortgage loans. 125% loans are generally fixed-rate HEILs. Home equity lines for home construction provide the most flexibility for paying different contractors at different times, which is why these are popular for home improvements. These 125 home improvement loans have been placed on hold until market conditiona improve.

What is home improvement?

Home improvement is the process of renovating or making additions to your home which can include remodeling, pool construction, replacing or repairing your roof, a room addition or general property improvements. Improving your home can increase your home's value.

According to a national survey conducted for Bank of America by MARC Research, 60 percent of homeowners believe that putting more effort and resources towards home improvement is the best way to increase home value. In some cases, however, home improvement projects don't always add as much value at resale as they cost, according to a national 2005 Cost vs. Value Report from the National Association of Realtors and Remodeling Magazine.

Home Improvement Projects That Provide the Greatest Return at Resale:

Project Cost Added Home Value
Siding Replacement $10,393 $10,771
Bathroom Remodel $10,499 $10,727

Home Improvement Projects That Provide the Least Return at Resale:

Project Cost Added Home Value
Siding Replacement $10,393 $10,771
Bathroom Remodel $10,499 $10,727


 

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