If you need to refinance, a home equity loan lest you cash in on the value you have built up in your home. The amount of equity is the difference between what you owe on your mortgage and what your home is worth on the real estate market. This option for refinancing is really great for homeowners who have been paying on their mortgage for quite some time and have a significant amount of the principal of the loan repaid. With a home equity loan, you can usually get about 80% of the equity as a loan.
The money you get through a refinance home equity loan is yours to do whatever you like. If you want to make further improvements to your home, then you are building up even more equity. There are some lenders that will approve a home equity mortgage loan where you don’t have to make any payments as long as you still live there. When you sell the home you have to repay the loan in full, plus interest of course. If you die, then your estate is responsible for the repayment.
As with a mortgage, your home is the collateral when you refinance. Loan payments have to be made each month, which could mean you have two mortgage payments to make. You have to make sure that you can afford this before you jump into it and the lender will require you to have an excellent credit record. If you default on the payment for the home equity loan, you could lose everything you have worked so hard for.
Many homeowners use the option of refinance in a home equity loan to consolidate all their bills. Then they use the total of the payments they were making each month to make the payment for the loan. Most of the time, this amount is much less than the total of all the other payments, giving you cash to work with each month. The rate of interest on a home equity loan is much lower than a normal loan and in some cases the interest may be tax-deductible.
When you want to refinance, a home equity mortgage loan has two options for you to choose from. You can have a fixed-rate loan where you make fixed monthly payments each month for a specified term. You can also have an adjustable rate line of credit with a home equity loan. If you choose the fixed rate option because you want to be able to budget each month, once you pay the loan in full, you cannot get another home equity loan. This is a one time thing. However, with a home equity line of credit, you can use the money over and over.
When you repay the line of credit, you can borrow money on it as you need it. You don’t have to have it repaid in full to do this and can use it as you see fit. You only pay the interest each month on the outstanding principal and you can pay it off in full whenever you want.
Posts Tagged ‘Improvements’
Home Equity Loan – Making it Count
December 27th, 2009
Because a home equity loan is such a major financial undertaking, it is understandable that most homeowners will not want to go through the hassle any more often than necessary. For this reason, if you are considering a loan on the equity that you have accrued on the value of your home, you will want to make sure that each dollar you borrow has maximum utilization. Choosing this type of loan has the advantage of providing sizable amounts of cash on fairly short notice, but it is still important to make sure your efforts are totally effective from a financial standpoint.
Why use the equity in your home?
Borrowers often choose to use the equity in their home because it is a larger sum available to them than with any other avenue of borrowing. There is an assumption that the home value will continue to increase so the equity will continue to rise. Unfortunately, this can also work against you if the major employer in an area folds or moves overseas and many people are trying to sell at the same time. If the home equity loan is used to pay off massive debts, there may be no other way to access that much cash otherwise.
What can the loan be used for?
The advantage of the home equity loan is that it can be used for almost any purpose that you require. The money comes to you in a cash form, usually to your bank account, so that it can be spent as any other money in your bank account. If you have large medical bills, you can pay them off. You can set aside money to pay for your child’s college bills. You can make improvements to your family home. You can pay off all your credit cards to reduce the size of your monthly obligations.
What is the cost?
A home equity loan will include the principal, of course–that’s the reason you are taking out the loan in the first place. In addition, you will be charged a rate of interest that will depend upon a number of factors such as your credit score, your continuing debt load, your income level and your loan type. In addition, there will be certain costs associated with the preparation and documentation on the loan. The loan broker may charge for their services. There may be document preparation fees at a title company or loan company. It’s important to read and understand all the costs that will be part of the loan so that you can determine if the cost is worth the ready cash.
Spending habits
Obtaining a home equity loan is a good time to review the way in which you handle your available income and obligations. A loan such as this allows you to control the due date of your loan payment so you can plan ahead. It is important to recognize that an equity loan is not free money, it has a cost and the cost can sometimes be heavier than your original mortgage, simply because there is more risk that the lender won’t be able to collect their money if the loan goes sour for any reason. Make sure that you recognize that payment of the mortgage and home equity loan is one of your first payment priorities each month.
