A home equity loan allows you to tap into your property's value
to pay off short-term debt, remodel, or pay for college. There
are several options for drawing on your equity, each with their
own benefits and drawbacks. No matter which option you choose,
interest is still tax deductible.
Refinancing Your Mortgage
By refinancing your mortgage, you can withdraw all or part of
your equity. With this type of loan, you have one monthly
payment with a low interest rate. If your mortgage originated
when interest rates were high, you may find savings by
refinancing now.
However, refinancing is costly with loan origination fees. You
will have to go through the whole loan process again. You may
also find that you may not find a better interest rate.
Opening A Home Equity Loan
A home equity loan allows you to take out a second loan based on
your home's equity. With this type of financing you have lower
loan costs and can usually choose shorter loan terms.
With a home equity loan, you find interest rates slightly higher
than mortgages. Monthly payments are typically larger than with
a refinanced mortgage. But in the long term, you will probably
pay less in interest charges.
Creating A Line Of Credit
A line of credit based on you home equity provides the greatest
amount of flexibility. You can choose to withdraw all or part of
the available cash as you need it. You payments are much like a
credit card payment. You can pay off a portion, then use that
credit later on.
Lines of credit have low to no fees, but interest rates are
higher than any other type home equity loan.
Picking The Best Option
When you pick a home equity loan, you need to take a look at
your budget first. Decide how much you can afford monthly to
pay. Also, look at how much you can save with each financing
option. For example, if you home loan has a high rate,
refinancing may save you money even with loan fees.
No matter which finance option you choose, research rates from
various lenders. Even a difference as small as 1/8% can save you
hundreds. Don't be afraid of asking for quotes. This way you can
get information on rates without getting hit on your credit
report.
About the author:
See my recommended
Home
Equity Loan Lenders online. Carrie Reeder is the owner of
ABC Loan Guide, which offers help with
loans for people with low
credit scores.
