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 ‘Refinance Mortgage’
Refinance Both Your Home Loan and Home Equity Loan
December 25th, 2009If you have a mortgage loan and you have requested a home equity loan too, you can refinance both loans and get a single loan and a single monthly payment with the same or better terms than the average of both outstanding loans. This can be achieved by applying for a refinance mortgage loan. Home equity loans, also known as second mortgages, are secured with the same asset as the primary mortgage loan, thus, when refinancing the home loan, you can include your home equity loan. This can provide you with many benefits like getting fewer monthly payments, saving thousands of dollars on interests, getting lower installments and reducing your overall debt exposure. Refinancing: ConceptAs you probably know already, refinancing consists on acquiring a mortgage loan in order to repay an outstanding mortgage. This can be done because the loan contract specifies that the money will be used to cancel the outstanding loan so the new loan will be the primary beneficiary of the security. The home equity loan is, in this case, also replaced with the new loan and the new loan amount will be determined by adding up the previous mortgage loan amount and the home equity loan amount. Saving Money? Getting Ease?By refinancing you can save thousands of dollars on interests. Home equity loans generally come with higher interest rates than mortgage loans and thus, by obtaining a lower rate refinance home loan you will not only be saving money on your mortgage loan but you will also be saving even more money on your home equity loan. Also, by refinancing you will unify both loans and get a longer repayment program and lower monthly payments. The resulting loan installments will be undoubtedly lower than the combination of mortgage loan payments and the home equity loan payments. Thus, even if you are indebted for a longer period of time you will get a lot of ease on your financial situation and income. Refinancing Other Debt: Cash-Out Refinance LoansA cash out refinance loan is a refinance loan with a higher amount than the outstanding mortgage loan and in this particular case than that of the mortgage loan and home equity loan combined. Once both loans are cancelled, the surplus can be used for any purpose you may think of, including reducing your overall debt. If you have other debt like credit card balances, personal unsecured loans, pay day loans, student loans, car loans or any other loan, you can use this surplus to cancel your debt and thus, you will be saving money due to the lower interest rate that refinance mortgage loans feature. This will improve your overall credit situation raising your credit rank and improving your credit history. Your debt to income ratio will also be improved just as your debt exposure. Using a cash-out refinance loan in this way is a smart thing and will do a lot to enhance your whole financial situation. Your ability to get finance will also increase since on your credit report, only a single outstanding and affordable loan will show.
The Second Mortgage Home Equity Loan
December 25th, 2009A second mortgage can also be referred to as a home equity loan. It is in essence a secured loan that is second, or subordinate, to the first mortgage against the property. The key issue for anyone getting this type of loan is the amount of equity they have in their home. This will ultimately determine the amount of money that can be secured for the home owners use. Equity is the amount of money that is paid down on the home, or it can be the value of the home minus any loans owed on the home. The main reason for taking out a second mortgage is to take equity from your home and turn it into cash in pocket. What this means is that if you have enough equity in your home you can borrow money using your home as collateral. There are three basic types of loans to choose from: the traditional second mortgage, a home equity loan, or a home equity line of credit. A second mortgage should not be confused with a mortgage refinance or re-mortgage. When you refinance your first mortgage you are replacing your old loan with a new loan, usually at a better interest rate. A second mortgage, or home equity loan, is another loan in addition to the primary loan, which will result in two monthly payments. It is important to distinguish the two to make sure that two payments will not seriously affect your monthly budget. The interest paid on a second mortgage, up to the first $100,000 borrowed, is tax deductible provided that the loan is on your primary residence. It should be noted that interest rates on home equity loans are generally higher than a first mortgage, usually in the 2-4% higher range. But the interest rate on a this type of secured loan will be lower then on an unsecured loan, such as a car loan, and much, much lower then you will find on a credit card. The common reasons to get a home equity loan are to pay off high interest credit cards or other higher interest rate debts, refurbishing the home, urgent family matters such as education, medical, etc. This is called debt consolidation and refinancing and is a good way to tap the asset value of your home to meet your investment and budget needs, and helps you avoid incurring high interest unsecured debt like credit cards. If you have extensive credit card debt, and are not making progress in paying it off on a monthly schedule, a second mortgage may be a good move. There are a couple of things that anyone getting a home equity second mortgage should be aware of. A second mortgage puts a second charge on your home, meaning that the second mortgage provider can take a share of any proceeds if your home has to be sold. What is worse, if you pay the first mortgage but fail to pay the second, that mortgage provider can seize your home, even if the sum involved is relatively small. Getting a second mortgage home equity loan can be a good way to use the equity in your home to do any number of things. Like all financial decisions using a second home loan should be carefully considered in all aspects. If it makes sense and fits within the monthly budget then it is something to be strongly considered.
