When to Consider a Home Equity Loans
Home equity lines can help people in a variety of different financial situations. Some scenarios where a home equity line of credit can help:
- Unexpected Expenses – Home equity loans often have the lowest interest rates of all loan types, and actually, it's much like borrowing from yourself. Having a home equity line of credit helps you prepare for any unexpected expense.
- Home Improvements – There is no better way to finance home improvements than with a home equity loan. can use a home equity line of credit to repair your roof, or paint your home- or even to build an addition for a growing family.
- Loan Consolidation – If you have high interest credit cards or loans that you'd like to consolidate to get yourself on firmer financial ground, it can be a good idea to use a home equity loan to pay these accounts off. You'll save on interest, and pay off your debt quicker.
Contact your mortgage broker if you could use a home equity loan, and with today's low interest rates, you'll want to get started right away to take advantage of the best rates.
Benefits of Home Equity Loans
There are many benefits of taking out a second mortgage or home equity line of credit, including:
- Extended Repayment Terms – Home equity lines of credit offer flexible repayment terms. Some don't require payment in full until your home is sold. Extended payment terms on loans like these don't give you permission to let the debt linger, but it's a huge benefit.
- Payments on Interest Only – Home equity lines often require only a payment based on the interest you have accrued, making for much lower monthly payments.
- No Closing Costs – Most home equity lines of credit have no closing costs and require no money out of pocket for you. With the right lender, fees will be included in to the home equity loan.
Take a Second Mortgage for Home Improvements
If you have improvements you need to make on your home, but aren't sure where you could get the money from- the answer is probably easier than you think. Most lenders are more than happy to assist you with taking out a home equity line of credit to make home improvements. The amount you can borrow will depend on how much home equity you have accrued, but many lenders, look well upon home improvement equity lines of credit because you are improving on their investment..
Don't avoid home improvements from fear of a second mortgage. Taking out money to invest in your home is using your money wisely because you are improving on your investment, and making it worth more money. Chances are, home improvements will improve the resale value of your home.
If you are interested in learning more about a second mortgage, talk to a few lenders and compare the interest rates. Choose someone you trust, and obtain the second mortgage to increase the value of your home exponentially.
Finding a Home Equity Loan with no Closing Costs
The closing costs of your home purchase may have seemed high. There are many junk fees thrown in with the legitimate ones, and this may be what is holding you back from obtaining a second mortgage.
Home equity lines are much simpler than a first mortgage. Often, there are no closing costs, or the closing costs are minimal. So, you'll not only have money available at a low interest rate, but you don't even have to pay out of pocket to get it!
If you find a no closing cost home equity line with a low interest rate, you should act on it even if you don't have an immediate need for it. Many people take out a home equity line just to have it available in case they need it in the future. Talk to your mortgage broker to find out which program will fit your needs.
Take The Maximum with A Home Equity Line of Credit
Something to consider when you take out a home equity line: Lenders will give you lower interest rates with a larger home equity loan. It may be a little scary to take out more money than you need, but with a little discipline, having the larger amount of money with a lower interest rate is worth it.
What do you do with the extra money? Well, a smart idea is to use is to start paying back your line of credit. Taking the larger amount of money secures your lower interest rate, and having the extra money will allow you to pay back the loan with some of the money from the loan itself! A line of credit works like a credit card (only with lower interest), and the funds are available to you even once you've paid off the balance.
Just be sure the lenders won't penalize you for doing this, but generally they will only issue penalty fees if you close out the line of credit too soon after obtaining it. A good mortgage broker will have more strategies like this for you to try, so make sure you develop a good relationship with your mortgage broker to take advantage of all the advice they have to offer.
Consolidating First and Second Mortgages
Many people have first and second mortgages. At some point in time, you won't need that second mortgage so you will want to consider consolidating your home debt all under one mortgage loan. It's easy to refinance your first mortgage to include your second mortgage, and you'll have lower monthly payments with a single loan rather than making payments to two separate loans.
There are lots of refinancing options so find a mortgage broker that will help you compare rates, and loan terms.
Interest Only Equity Loans – Quick Cash With Low Payments
If you need money fast, with a low interest rate, a home equity loan may be your best option. The best feature of an equity loan is that you can often obtain a larger amount of money with a low interest rate and even low monthly payments. Payments on an equity line are based on interest instead of the principal amount of the loan you have borrowed.
Wise Investing of Your Home Equity Loan
If you are going to cash out your home equity to invest in other money making ventures, be sure you consider the following factors.
- Realistically weigh the risks of taking out a home equity line to invest cash into another investment.
- You will have to pay back any home equity loan that you take out. You can't borrow from your home equity and then just hold the loan without making payments. Make sure your new investment does not harm your ability to pay back your home loan.
Retirement Planning Considerations with Home Equity Line of Credit
Most financial advisors will tell you to be careful with how you spend money from your home equity line of credit. You really shouldn't use this money to go out for dinner or shopping- it should be used for home improvement, debt consolidation or reinvestment opportunities to get the most value from your home equity line of credit.
A great way to invest your home equity is to invest in a retirement fund. An IRA or other long term, interest bearing investment will help make more money from your home equity line. The best thing for you to do is consult with a financial planner to help determine the best ways to reallocate your investments. They can help you assess whether or not it is better to pull out home equity to reinvest it in another vehicle or whether you should leave the equity in your home. Follow the advice of a professional – they will most likely point you in the right direction.