Home Equity Loans
Home Equity Loans
Mortgages
Refinancing
What is a Home Equity Loan / Line of Credit?
Home equity loans are basically the same thing as a second
mortgage. The bank or loan company lends you money up to an amount roughly
equal to the equity in your house. Equity is the difference between the market
value of your home and what you owe on it.
Following are cautions if you
decide to shop around for these home equity loans:
- Watch out for low introductory rates, especially on revolving credit lines.
Your home equity loan rate may start at 6 percent, but 4 months later increase to
12 percent. The loan rate may be variable, based on the prime rate in the
future. You have no way to predict future prime rates. Many variable
rate loans have no cap on how high the interest rate may go. As a general
rule, consumers should avoid loans without "caps" or with "caps" higher than they
can afford to pay, no matter how low the current rate.
- Watch out for mortgage points and closing costs that could total several hundred
dollars.
- Watch out for balloon payments. That means by a certain date a large sum of
money is due.
If you can't pay the balloon, you lose your home. This
is a huge risk to take.
- Also, beware of home equity loans packed with unnecessary or expensive life insurance,
property insurance, or credit insurance. Buying credit or disability insurance
cannot be made a condition of getting a home equity loan. Property insurance
can be required, but can always be purchased through your own insurance company,
often times for less money.
Don't accept ads at face value - always shop around for a line of credit.
There are many different types of refinancing products, rates and lenders.
Remember what's at risk with home equity loans -- your home.
Home Loan mortgages
The
best home mortgage is one you can afford
to finance for as long as you plan to remain in the home, that saves you the most
money. Affordability varies with the type of mortgage and the mortgage rate. Mortgage rates fluctuate daily, so it is important you are aware of a general
range of mortgage rates when you are looking to finance your home.
A reverse mortgage is a special type of
mortgage that is designed for people
who are 62 years of age or older, lets you tap into your home’s equity without having
to repay the debt for as long as you live there. Instead of making
monthly payments, you receive monthly payments. This is a great way
for senior citizens who are out of the work force to supplement their income each
month.
When should
I Refinance?
Mortgage refinancing makes sense if:
- Mortgage rates have lowered since obtaining your original home
loan.
- You wish to use the equity that's built up in your home.
- You wish to shorten your mortgage payment period.
- You have an adjustable rate mortgage (ARM) and you want to convert
it to a fixed rate mortgage.
An old myth was to only refinance if you could lower your interest rate by two percent.
This myth no longer exists with the wide range of refinancing options now available.
The focus needs to be on what your particular need is. After all, the interest
rate is only one component of the entire transaction.