Red Bluff Home Loans: Which Equity Option is Best?

mortgage officer and client exploring home loans.

Since obtaining your first home loan, you have watched your children grow into fine young men and women. Unfortunately, you may have also seen your home deteriorate, or maybe your children are ready for college. Luckily, the payments you have made toward your home can help you get what is commonly referred to as a second mortgage and make those large financial burdens a little easier to carry. Read the following breakdown of home equity loan options to find the best for your situation.

One-time Loan

Home values fluctuate at near-constant and sometimes drastic rates. Buying a home during times of low-value can lead to the opportunity for mortgage holders to use the current value of their home as collateral for extra income. The first option for homeowners is known as home equity loans. These one-time loans are very similar to traditional home loans. Homeowners will borrow a fixed amount of money with a fixed interest rate that is to be paid over a set period of time.

Cash Refinance

All refinancing loans can be referred viewed as “cashing out” when the funds received will be used for anything other than repaying an existing mortgage. When a homeowner chooses to cash out refinancing, they will take a loan out on real property that he or she already owns. This loan amount is always above and the beyond cost of the transaction, any amount owed on existing liens, and other related expenses. Not unlike a home equity loan, a homeowner owing $80,000 on a home valued at $200,000 can borrow against the $120,000 in equity. However, cash refinancing is more appropriate if the homeowner is looking to borrow more than the amount of equity.

Revolving Credit

Home equity loans and cash refinancing give you a lump sum of money with fixed interest rates and set pay-off times. More like a credit card, a home equity line of credit (HELOC) provides homeowners with the opportunity to only borrow what they need, when they need it. Your lender will determine your credit limit based on several factors including the amount of the home’s equity, your income and credit scores. Of course, homeowners should be aware that HELOC interest rates are variable and will therefore change, sometimes from one month to the next.

Since the recent recession, those looking to obtain home equity loans, lines of credit, and refinancing have become subject to a higher level of scrutiny. Homeowners must have enough equity, high credit scores, and an income level high enough to cover their debts. Do your homework, take a hard look at your finances, and speak to a mortgage lender to find out which of these home equity options is right for you.

Posted on May 22, 2017 and filed under mortgage.