Mortgage Refinance/Equity Lines
Are you thinking about refinancing your home or taking out an equity line loan? Despite the negative stigma that is often attached to refinancing a home, there are many positive reasons that you might wish to take out one of these loans. In fact, refinancing your home or taking out an equity loan can be one of the smartest financial decisions you can make.
Reasons to Refinance or Take Out an Equity Loan
Obviously, some people choose to refinance their homes in order to get out of financial trouble. Nonetheless, there are many other reasons that you might want to take out one of these loans. These include:
- You want to decrease the life of the loan so you can pay it off sooner
- You want to consolidate your debts into just one payment
- You want to lower the interest rate of your mortgage loan
- You need money to make repairs or upgrades to your home
- You want to pay off your credit card debt with a lower interest rate
All of these reasons are good reasons to refinance your home and save money in the long run.
Types of Refinancing and Equity Loans
There are three major types of refinancing or equity loans that you can select from. These include:
- Home Equity Line of Credit
- Home Equity Loan
- Standard Refinance
With a home equity line of credit, you receive a line of credit in a way that is similar to a credit card. This means you can borrow money from your line of credit as you need it and then you make monthly payments based on the amount you have borrowed. Most of these programs allow you to continue accessing the line of credit for about ten years. After that time is up, you will have to pay off whatever you still owe.
A home equity loan is very much like a personal loan in that you will receive a certain amount of money upfront and you will have to repay the loan in the form of regular payments. The interest rate is locked in with equity loans, but they do not last as long as the typical refinance loan. In most cases, these loans last anywhere from ten to twenty years. This loan is in addition to your current mortgage loan, so you have to pay both loans as you have agreed with your bank.
With the standard refinance loan, you actually take out a new mortgage loan. When you take out one of these loans, your current mortgage is paid off and you start making payments on the new loan.
Taking a Closer Look at Home Equity Loans
In order to qualify for a home equity loan, you need to actually build up equity in your home first. Equity is the value of the home, minus whatever you still owe on it. Therefore, if your home is valued at $200,000 and you still owe $50,000, you have $150,000 in equity.
When you take out a home equity loan, you borrow against the equity that you have built up. Most lenders, however, will not let you borrow the full amount of your equity. Rather, it is more common to allow borrowers to borrow up to 80% of the equity. Therefore, if you have $100,000 in equity, you might be able to borrow up to $80,000.
Since a home equity loan is based off of the equity you have built up in your home, you are actually borrowing against your home. Therefore, if you default on repaying the loan, you can possibly lose your home. This means, you need to make certain you have a good reason for taking out an equity loan.
Taking a Closer Look at Refinance Loans
Refinance loans work in the same was as mortgage loans. Therefore, you will lock into an interest rate when you refinance your home and you will pick a new loan term. Typically, the loan terms people select from are 15 years, 20 years, and 30 years, though you may be able to negotiate a different length with your lender. As with your original mortgage, your credit score will determine the interest rate you receive. With an excellent credit score, you will be able to obtain a better interest rate than someone with a poor credit score.
If you are interested in refinancing your home or obtaining a home equity loan or line of credit, contact FiveStarHomeMortgage today. One of our professionals will be happy to help!