There are several types of home equity loans. Some can be a better fit than others based on your situation, loan rates, and what you need the loan for. The MA home equity loan advice offered in this article will help you understand your options.
Different Types of Home Equity Loans
A cash-out refinance pays off your first mortgage and creates a new one. The new loan includes the amount of the old one, the additional funds you are taking out and any closing costs. Because you are eliminating the existing mortgage, 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 traditional refinance except that you are taking out equity in the property. Those equity funds are given to you in one lump sum. When evaluating a cash-out refinance, compare the rate of your current loan with the new one. If your current rate is higher, then it will be beneficial to refinance it 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 alternative, you borrow a lump sum of money to be paid back over a set amount of time, either at a fixed rate or a variable one. Second mortgage rates may be higher than first mortgage rates. They also have settlement charges similar to first mortgages.
Home Equity Line of Credit (HELOC)
A home equity line of credit traditionally has an adjustable interest rate that goes up and down when the prime rate moves. HELOCs are open-ended, so they operate like credit cards. The lender determines your maximum credit limit. You can access funds up to that limit as needed. Your payment reflects the actual balance. As your balance lowers, the remaining credit may still be used. Credit limits may be altered by the lender as significant changes take place in the real estate market.
Ask about annual fees, cancellation fees, and mandatory balances or withdrawal restrictions. Like credit cards, HELOCs can be terminated by the lenders at any time. This loan type may be good if you are unsure about needing the entire loan. However, keep in mind that the maximum allowed can be reduced, limiting the total funds available.
MA Home Equity Loan Advice
All home equity loans are determined by the market value of your real estate and the amount of current mortgages. You can estimate your equity by calling a local real estate professional for a market analysis. Mortgage companies will order appraisals to determine a more definitive figure prior to approving the loan. Be careful not to take out more equity than you really require. Also make sure that the new loan payments are within 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 broad overview. Consult with a local mortgage consultant for applicable interest rates, closing costs, and other solutions.