There are many different home equity loan options. Some can be a better alternative than others based on your circumstances, mortgage rates, and the reason for your home equity loan. The MA home equity loan advice detailed in this blog will help you understand your options.
Types of Home Equity Loans
A cash-out refinance pays off your old loan and creates a new one. The new loan includes the balance of the old loan, the additional funds you are taking out and any closing costs. Because you are paying off the existing loan, rather than taking out a new one as a second mortgage, the mortgage rates may be lower than a second mortgage. This is basically a typical refinance except that you are taking out equity in the home. Those equity funds are paid to you in one lump sum. When evaluating a cash-out refinance, compare the interest of your existing loan with the new one. If your current rate is higher, then it will be beneficial to refinance everything to a new loan with a better rate. Otherwise, you should evaluate other options and preserve your first mortgage rate.
Home Equity Loan
A home equity loan is a second mortgage on top of your first mortgage. With this loan, you borrow a lump sum of money to be paid back over a specific number of years, either at a fixed rate or at one that may increase or decrease after a certain period. Second mortgage rates are traditionally higher than first mortgage rates. They also have settlement costs similar to first mortgages.
Home Equity Line of Credit (HELOC)
A home equity line of credit usually has an adjustable interest rate that \”adjusts\” when the prime rate moves. HELOCs are open-ended, so they are similar to credit cards. The lender determines your maximum credit limit. You can borrow funds up to your limit and can withdraw in varying amounts. Your payment reflects the running balance. As your balance drops, the remaining credit may still be available for use. Credit limits may be reduced by the lender as significant changes occur in the real estate market.
Ask about annual fees, cancellation fees, and mandatory balances or withdrawal requirements. Similar to credit cards, HELOCs can be terminated by the lenders at any time. This option may be good if you are uncertain about needing the maximum amount of the loan. However, keep in mind that the credit limit can be reduced, limiting the available funds.
MA Home Equity Loan Advice
All home equity loans are based on the current market value of your real estate and the amount of existing loans. You can estimate your equity by calling a local real estate professional for a market analysis. Mortgage companies will request appraisals to determine a more exact amount before approving the loan. Be careful not to pull out more equity than you really require. Also ensure that the new loan payments fit your budget. All home equity loans use your home as a lien, allowing them to foreclose if you are unable to make payments. This MA home equity loan advice is intended as a general overview. Consult with a local mortgage consultant for relevant interest rates, closing costs, and other alternatives.