As you make payments on your mortgage loan or make improvements to your property, or if property values in your neighborhood increase, the equity in your home may increase. Home equity is the difference between your home’s fair market value and the outstanding balances of all the loans and other liens on your property.
If you have equity in your property, you may be able to use it as collateral for a home equity loan
or a home equity line of credit, often called a HELOC. A closed-end home equity loan is for a fixed amount of money that you receive at closing. You will not be able to borrow additional money under the terms of this type of loan. An open-end home equity loan has a credit line set by the lender. With this loan you can choose when and how often to borrow money up to your credit limit.
Is this right for you?
You may want to make home improvements to increase the value of your home, or you may decide to consolidate your debts by paying off high-interest credit cards. Maybe you have unexpected medical bills or need funds to pay for school expenses. A home equity loan can be a convenient way to get money for these situations; however, before you get a home equity loan, there are things that you should carefully consider. Remember that a home equity loan creates another lien against your home and reduces the equity that you have built up. You could risk losing your home if you do not plan wisely.
Ask as many questions as you asked when you were looking for your home loan. The decision to get a home equity loan or line of credit should be made wisely. Make sure you can afford the loan. Have a solid financial plan and set up a budget, so you can be confident that you can make the additional monthly payment while still meeting your other financial obligations. You worked hard to get your home, so don’t risk losing it!
Should you consider refinancing?
Refinancing is paying off one loan by obtaining another and is usually done to secure better loan terms such as a lower interest rate. You might also want to refinance for the same reasons you may have considered a home equity loan or line of credit — to get cash from the equity that you have built up in your home for such things as home improvements, paying off other debts, major purchases, starting a business, or education costs, etc.
You should carefully consider the terms of a refinance as well as the long-term impact on your financial situation. You should shop as carefully for your refinance loan as you did when you bought your home. Refinancing can deplete the equity you have built up if you take out the equity in your home in cash, and it can negatively affect your ability to pay your loan if you do not closely review the terms of your new loan. Consider the same issues that you addressed when you first applied for your home loan that have been discussed throughout this booklet.
On the positive side, if you shop carefully for your refinance, you could lower your monthly payments by getting a lower interest rate. Be wary of unsolicited refinancing offers that you may get in the mail or through e-mail. Although not all of these offers are deceptive, there are many unscrupulous loan originators who use the offers to find unsuspecting home owners. Some of these unscrupulous loan originators will even use the HUD and FHA logos in an attempt to make their solicitations appear legitimate. If you have any doubts about whether a communication has actually been sent by HUD, use the contact information in Appendix C to contact HUD.
After considering the information above, have you determined that a home equity loan or line of credit is right for you? If so, or if you are not sure, ask the friendly experts at Choice Lending Group Temecula. We can help you start shopping for a loan and help you decipher which one will fit your needs. Give us a call at (877) 777-1203.