Who should get a loan on their home's value?
Most of the time, there shouldn't be nearly as many people getting them as there are now. Most of the time, it's just because people want something and they want it right away. The best thing to do with your home's equity, though, is to leave it where it is. This will help you build up even more equity, which will be very helpful when you sell your home.
A home equity loan, on the other hand, is a loan against your home. This means that the security for the loan is your home itself. Your house is now the proof that you will keep paying back your loan. You lose it if you stop making payments for any reason.
What is a second mortgage?
Most of the time, a home equity loan is a second mortgage. Because of this, it has a higher interest rate than a first mortgage and you only have up to 15 years to pay it back.
Why is it a good idea?
Any goal can be met with a home equity loan. It is most valuable, though, when it is used to fix up or improve your home. Not only do home improvements increase the value of your home and your equity, but the money you spend on them is often tax-deductible. When used in this way, this brings the interest rate down even more.
There are also two ways to get a loan against the value of your home. You can get one with a fixed rate or with a rate that changes over time. This is the easiest way and gives you the most options, depending on the economy and your situation.
What could be better than a home equity loan?
You can get the best deal if you refinance your first mortgage into a cash-out mortgage. This gives you new mortgage terms, lets you combine two (or even three) mortgages into one, and gives you the lowest interest rate available. You can also use your equity by adding the amount of equity you want to the loan. To make it worth it, though, you should plan to live in that home for at least the next five years.
What do you need to look out for?
When you go to apply for a home equity loan, you should get several quotes and look at how they compare. Different lenders add different fees and other things to a loan. Some will attach more than others, which will drive up the price of those items. You can get the deal you want if you compare things carefully. You could lose your shirt if you don't pay attention to what you are getting. With one lender, you could pay thousands of dollars more than with another. Those who pay attention can save real money.
Also, be wary of a lender who tries to give you a loan/equity that adds up to more than 80% of your home's value. You don't need a loan with 125 percent equity because that will put you in the red and keep you there for a long time.
How can you make your terms better?
Your credit score is a big part of how lenders decide whether or not to give you money. Get a copy of your credit report and check to make sure it is correct. Also, if you pay down your debt ahead of time and fix any mistakes on your credit report, you might be able to get a better interest rate and other better terms.
