If you find yourself in need of a large sum of money for some reason, you may be considering using the equity in your home by either doing a cash-out refinance or getting a home equity loan in order to gain access to the money you need.
With the federal government beginning to slowly lower interest rates, you may be wondering if you should do a cash-out refinance in order to get that lower interest rate as well as gain access to the money you have in equity. This may be a tempting situation, but a lower interest rate is only one of the things that you should take into consideration.
When you refinance your home, you are taking out an entirely new mortgage. You use this new mortgage in order to pay off your original mortgage. In the case of a cash-out refinance, you borrow more on your home than the original mortgage balance, using your equity as collateral. You can then use the money left over after the refinance is completed to do anything you’d like. You can pay off credit cards, take a vacation, make home improvements, etc.
There are drawbacks to cash-out refinancing. First of all, your mortgage balance will be bigger and will most likely be extending your loan term. Mortgages are written with either 15 year or 30 year terms. If you only have 8 years before you pay off your mortgage, refinancing to even a 15 year mortgage is nearly doubling your loan term.
There are also considerable fees involved when you refinance. It would be worth your time, and sometimes a great deal of money, to find the best deal on fees that you can find.
With a home equity loan you are using the equity in your home as collateral on a loan. Home equity loans can be for a set amount or you can get a home equity line of credit, which is an open-ended loan that can be used just as you would use a credit card, keeping in mind that when you use that line of credit, you are using the equity in your home.
Home equity loans are easier to get than a refinance, especially if you have bad credit. The interest rate is also usually lower than a refinance, and the payments sometimes qualify as being tax deductible.
No matter whether you choose a cash-out refinance or a home equity loan, be sure to do some research on the companies you are considering working with. The best way to choose a good company to work with is to ask your friends, family and coworkers for recommendations. Ask not only about the process itself, but about how they were treated by the people they were working with. Were they rushed into decisions, or did they feel that they were given good information so that they could make the final decisions themselves? Remember that you are the customer, and when you are taking a large amount of money out against your home, you shouldn’t be rushed into anything.
By: J Suffie
Posts Tagged ‘Home Equity Loans’
Refinance vs Home Equity Loan
May 25th, 2010FHA Home Mortgage Loans – Refinance Adjustable Rates and Debt
April 26th, 2010
Homeowners across the nation continue to turn to cash out refinance and home equity loans for paying off high rate credit cards that are escalating out of control. The Federal Reserve lowered key rates again yesterday, but many homeowners just can’t take the combination of rising adjustable mortgage rates at the same as the increasing interest rates from their credit card companies. Unfortunately, recent changes to the bankruptcy laws have led to minimum credit card payments being doubled by the bank lenders who issued the credit. As consumer debt grows so to do the worries of homeowners across the nation who may be facing a foreclosure on their home. It makes sense to utilize the equity you have left to help refinance an eliminate the debts that are causing you the most pain.
Bankruptcy used to be the way people got out from under burdensome credit card debt. But, under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 filing for bankruptcy is prohibitively expensive, complicated and time consuming. This may be why fixed rate home equity loans have become popular methods for refinancing high-interest credit card debt, particularly for those with low credit scores.
Critics suggest that credit card accounts are not secured by your home. But then, the interest is not tax deductible. Most first or second mortgage loans carry mortgage interest that is tax deductible. Home equity loans are calculated with simple interest terms and revolving credit cards are calculated with compounding interest.
While credit card advocates point out that the loan terms for refinance and home equity loans are typically longer than credit cards, they are not forthcoming with the penalty rates and additional costs added to the compounding interest. Many consumers are beginning to realize that fixed interest terms are more realistic for actually paying off your debts.
Borrower like the home refinance loans, because they can get a reduced interest rate that offers an affordable payment. The adjustable rate mortgages have caused a real stir in 2008 as foreclosure and payment default rates have reached record highs in states like California, Florida, Indiana, Michigan, Virginia and Massachusetts. With new FHA initiatives, homeowners can refinance their ARM with a FHA home mortgage that now allows cash back and debt consolidation. FHA used to limit home refinancing to rate and term guidelines that prohibited any cash back or bill consolidation. FhA also allows bad credit, limited credit and loans for first time home buyers.
By: Maria Ny
Florida Home Equity Loans – Refinancing a Home Equity Loan
April 14th, 2010
During the last five years, Florida home values have practically doubled in cities like Orlando, Miami, Tampa, Ft. Lauderdale, Clearwater, and Sarasota. Many homeowners reaped the benefits during this time and borrowed from the equity in their home. If you are part of this crowd, now may be a good time to consider refinancing your Florida home equity loan. While refinancing may not be right for everyone, it can be very beneficial to some. Good reasons to refinance include:
Better Interest Rates
Interest rates in the state of Florida are constantly changing. If you took out a fixed rate home equity loan while rates were high, or if you now have better credit, refinancing your Florida home equity loan could save you a lot of money. You’ll have to be very careful though. Lower monthly payments may not offset closing cost fees. For example, if your closing costs come to $3,000 and you save $100 per month, it will take you 30 months to break even.
Avoid a Balloon Payment
Taking on a Florida home equity loan that has a balloon payment can save you money in the beginning of the loan term, but coming up with that final balloon payment can be difficult. Refinancing your home equity loan will allow you to avoid the balloon payment altogether.
Extract More Equity Cash
When dipping into your equity, it can be very hard to determine how much money to borrow. If you didn’t take out enough the first time around, refinancing your Florida home equity loan will provide all of the benefits mentioned above and allow you to extract a bit more cash from your equity.
By: Jane Hale