There are many different types of home equity loans. Some can be a better fit than others based on your circumstances, mortgage rates, and the purpose of your home equity loan. The MA home equity loan tips provided below may help you evaluate your options.
Types of Home Equity Loans
A cash-out refinance pays off your first loan and creates a new one. The new mortgage covers the balance of the old mortgage, the additional funds you are extracting and any closing costs. Because you are replacing the existing loan, rather than taking out a new loan as a second mortgage, the mortgage rates may be lower than a second mortgage. This is essentially a typical refinance except that you are extracting equity in the property. The equity funds are paid to you all at once. When evaluating a cash-out refinance, compare the mortgage rate of your current loan against the new one. If your existing rate is higher, then it would be a good decision to refinance everything to a new mortgage with a lower rate. Otherwise, you may want to review 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 that you pay back over a set amount of time, either at a fixed rate or at one that may increase or decrease after a certain period. Second mortgage rates may be 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 traditionally 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 sets your maximum line of credit. You can borrow funds up to your limit and can access in varying amounts. Your payment reflects the current balance. As your balance gets paid down, the remaining credit may still be withdrawn. Credit limits may be lowered by the lender based on significant changes in the real estate market.
Review annual fees, cancellation fees, and mandatory balances or withdrawal restrictions. Similar to credit cards, HELOCs can be closed by the lenders at any point. This solution may be great if you are uncertain about needing the entire loan. However, be aware that the credit limit can be reduced, limiting the total funds available.
MA Home Equity Loan Tips
All home equity loans are based on the market value of your property and the balance of current loans. You can determine whether you have any equity in your property by calling a local real estate agent for an estimate on its value. Mortgage companies will request appraisals to identify a more definitive amount before lending you any money. Think twice before pulling more equity than you actually require. Also make sure that the new mortgage 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 tips is intended as a broad overview. Speak with a local mortgage consultant for relevant interest rates, closing costs, and other alternatives.