Your house is not only a place to live, but also an investment. Your home can become a readily available source of cash to deal with emergencies, repairs or upgrades obtained through a mortgage or home mortgage loan. Home equity loans provide you with cash in exchange for the net assets you have accumulated in the property as a separate loan. There are two common methods of mortgage refinancing, or "refi": a rate-and-term refinance and a cash-out loan.
1. Home Equity Loans
Compared with personal unsecured loans, home equity loans tend to have lower interest rates because they are secured by your property. This is the problem: if you default, the lender can follow your house.
There are also two forms of home equity loans: traditional home equity loans (one-time borrowing) and home equity lines of credit (HELOC).
HELOC is like a credit card related to your home equity. During a fixed period of time (called the withdrawal period) after receiving the loan, you can usually borrow as little or as much credit as you need, although some loans do require a minimum amount of initial withdrawal.
If you do not use your credit line at any time during the scheduled period, you may have to pay transaction fees for every withdrawal or no activity fee. During the withdrawal period, you only need to pay interest on the borrowed money. When the withdrawal period ends, your credit limit will also end. When the repayment period begins, you begin to repay the principal plus interest.
2. Second Mortgages
Traditional home equity loans are often called second mortgages. You have your own main mortgage, and now you have to take out a second loan to offset the equity you established in the house. The second loan is subordinate to the first loan-if you default, the second lender is ranked behind the first loan to collect any income due to foreclosure.Therefore, the interest rate of home equity loans is usually higher. The lender assumes greater risk. HELOC is sometimes called a second mortgage.
Home equity loans usually have fixed interest rates, although some of them are adjustable, while HELOCs usually have adjustable interest rates. The annual interest rate (APR) of the home equity credit line is calculated based on the interest rate of the loan, while the annual interest rate of the traditional home equity loan usually includes the cost of starting the loan.
Mortgage discrimination is illegal. If you believe you have been discriminated against based on race, religion, gender, marital status, use of public assistance, nationality, disability or age, there are some steps you can take. One of the steps is to submit a report to the Consumer Financial Protection Bureau and/or the U.S. Department of Housing and Urban Development (HUD).
Or maybe your interest rate is already low, but you are looking for some extra cash to pay for the new roof, add decks to the house or pay for your kids' college tuition. This is where home equity loans may become attractive.
Mortgage refinance and home equity loans can benefit homeowners who want to convert their home equity into cash. To determine which method is best for you, consider the equity available, the money you will be using, and the time you plan to stay at home.