The main difference between a home loan and a home equity loan is that the interest rate on a home equity loan, which is also called a second or even third mortgage, is higher. This interest rate is lower than what you might pay on a credit card, but it will still be higher than the original rate.
Use a home equity mortgage calculator to see how the payments change when you take out different amounts of your equity. The mortgage calculator then lets you compare your options to see if this is the best thing for you to do.
Completely refinancing your home may be a better choice from a financial point of view. At this point, the mortgage calculator can really help you out. When refinancing, you have a lot of choices, especially if you have a lot of equity in your home. By putting each of these into a mortgage calculator one at a time, you can make a list that shows you which option is best for you.
Homeowners often think that home equity loans are a lot better than they really are. This is because the lender wants to get you to sign over the property to him. Use your mortgage calculator to find out everything you need to know. Check to see if what you've figured out matches up with what they want you to sign. You may find out later that it wasn't such a good idea if a contractual obligation you didn't fully understand puts your home at risk of being taken away.
Only in the worst cases should you even think about getting a home equity loan that takes away all of the value of your property that is above your mortgage. Use the mortgage calculator to make sure your payments are affordable, and always add a percent or two to the interest rate.
Refinancing your home is a big step, but like a first mortgage, it is the only claim on your property. If you take out a home equity loan instead, another lender will have a financial interest in your home. If you decide that the terms of the home equity loan are much better and the mortgage calculator makes it look like you can easily afford it, make sure to read the fine print.
You need to know what the payments are for. For example, are they just interest that will leave you with a large amount of capital to pay back later? Make sure you can pay these extra payments each month.
Here are some things you shouldn't do that will help you long-term:
- Don't put too much value on your home's equity when you use the mortgage calculator. This can give you false hopes, which your appraiser will quickly put to rest.
- Don't ever overestimate your income. If you can, think of overtime pay as "extra," not as part of your regular salary.
- Don't tell yourself or your mortgage calculator a lie.
If you want to use the money to make improvements to your home, they should raise the value of your home. Before agreeing to either the loan or the work, you should look into this carefully to find out about how much your home's value will go up. If you don't do the work, you still have to pay back the loan, but you haven't built up any new equity.
