When the loan closes, you can get cash from both refinance loans and home equity loans. Both refinancing and getting a home equity loan can be great ways to save money and get money, but there are some things you should know before you do either:
To get a loan, you need a good reason.
Whether you're thinking about a refinance loan or a home equity loan, you need a good reason to spend the money needed to close on the loan. Possible good reasons include the need for a better rate and terms or the need for cash to pay off other bills or consolidate debt. No matter what the loan is for, you should make sure it will save you money in the long run and, more importantly, that you can afford the new loan payments.
Different terms apply to refinancing
Not every loan to pay off debt is the same. Some have lower payments during the term and a larger payment at the end, called a "balloon payment." Some terms are for 30 years, and others are for only 15. If you're going to get a refinance loan, make sure the terms are something you can handle.
The terms of home equity loans vary.
Like the terms of a refinance loan, the terms of a home equity loan can be different. Some loans have rates that go up and down, while others have rates that don't change. The length of terms can also be all over the place, so it's best to look at all of your options before making a final choice.
Rates at the start can be misleading.
Introduction rates, which are sometimes called "teaser rates," look good on paper, but they can be very misleading. Before taking out a loan with low introductory rates, you should know when the rate will change, what the rate cap is, and how much your highest payment could be.
It's important to compare fees.
Most people compare interest rates when they want to refinance or get a loan against their home equity. This is a good idea, but interest rates shouldn't be the only thing you look at when comparing loans. Because fees and closing costs can be different from one lender to the next, you should also take the time to compare these factors.
Not all loan interest is tax deductible.
In spite of what most people think, you can't always write off the interest you pay on a home equity loan or a refinance loan on your taxes. Before assuming that you will be able to save money on taxes, you should talk to a professional accountant. A professional accountant will be able to look at your situation and the possible loan to see if you are eligible for tax deductions.
You can't get a loan for nothing.
Don't be tricked by lenders who offer refinance loans or home equity loans with no closing costs. There's no such thing as a loan that costs nothing. If you don't pay the fees up front, you'll have to pay for them later when you pay back the loan. Even though this may not seem like a big deal, you should remember that you will have to pay interest on anything you don't pay in full right away.
Loans with negative amortisation are risky.
Negative amortisation loans are still available from lenders, even though they are not as popular as they used to be. The person who takes out one of these loans takes a big risk because the payments aren't always enough to cover the interest payments. Any interest that isn't paid will be added to the loan's unpaid principal, making it very hard to pay off the loan on time.
Tax Assessment Aren't Genuine Appraisals
If you want to get a refinance loan or a home equity loan, don't assume that the local tax assessor's valuation of your home is the same as its actual market value. Tax assessments aren't genuine appraisals. Your home may be worth a lot more or a lot less than what your tax assessment says it is worth. You can only find out how much your home is really worth by calling a real estate appraiser who works on their own.
You can quit.
Federal law lets you back out of a refinance loan, a home equity loan, or any other type of loan where your home and property will be used as collateral. You have three days after the loan has closed to change your mind. If you're not sure about the loan for whatever reason, this is your chance to back out before it's too late.
