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Using A Home Equity Loan For Financial Reasons Staff - Mortgage Lenders Plus.com

The leap in home values over the last five years has led many homeowners to take equity out of their homes in the form of cash. That cash has been put to use for college educations, for home improvements, for new cars, for myriad purposes. However some people have used home equity loans or lines of credit to improve their home owner debt, paying off the mortgage with a home equity line.

This option makes sense for people who have little left on their mortgage. Obtaining a new mortgage with an outstanding debt of, say $25,000 might be a challenge with many home mortgage lenders and if the loan was available might cost ten percent of the balance in closing costs. However a homeowner in this situation could take out a home equity mortgage refinancing line of credit with little or no cost attached to obtaining it, pay off the mortgage and pay a lower rate on the equity note. In addition, the homeowner retains the tax write off on the equity loan’s interest.

The issue with home equity lines of credit (HELOCs) is that they have variable interest rates. While a decent line of credit will only require you to pay interest on the money you have taken out of it, you have to exercise some discipline after paying off the mortgage.

A home equity mortgage refinancing loan may also make sense for people who own higher end properties and want to refinance their loan without incurring the costs of a new mortgage. Take for example a home that has appreciated to half a million dollars that has a mortgage of $250,000 outstanding at 7.25 percent. A new mortgage could bring this down to 6.25 percent but the closing costs would be several thousand dollars. A home equity loan, however, could provide the same sum at a lower figure than the mortgage index with no closing costs attached to the loan.

Unlike home equity lines of credit, home equity loans are available at fixed rates and usually at lower rates than mortgages. A twenty year home equity loan that pays off the mortgage may cost just about the same in monthly premiums as the original mortgage, and it will have removed ten years from the term of the home loan.

Millions of Americans have seen their sudden realization in home equity as a one-time bonus to play with. But when your home equity can be matched with lower interest rates than your mortgage carries, home equity mortgage refinancing carries multiple benefits. It can reduce the duration of your home indebtedness and perhaps have a positive impact on the monthly premium. If you opt for a home equity loan, your rates will remain fixed.

For people who have refrained from the refinancing craze thus far, the benefits are still very much in play – particularly if they are applied to existing debt and the goal is home equity mortgage refinancing.