For most people, a mortgage payment is among their largest monthly expenditures. And while owning a home can be a huge expense — it is also a huge asset. Building equity in a home allows homeowners the flexibility to tap into cash for major expenses or restructure the terms of their loan to decrease monthly payments by refinancing or obtaining a home equity loan.
Refinancing an existing mortgage loan recalculates the amount you still owe on your home for a shorter or longer period of time with a different interest rate. Homeowners can choose to extend their loan term to lower monthly payments or reduce loan terms to pay a mortgage off more quickly.
A home equity loan utilizes the equity you have in your house to provide a loan for a period of time. A home equity loan is a fixed rate, fixed payment loan against your home, typically a second lien behind your first mortgage. Payments made toward a home equity loan are separate and do not disrupt your current mortgage payment schedule.
Using the equity you’ve accumulated in your home, a home equity loan allows homeowners to borrow funds for things like:
With a home equity loan, there are no surprises. Borrowers can expect a consistent interest rate, payment amounts don’t change, and when the loan repayment schedule reaches maturity, the loan is paid off.
The best candidate for refinancing is someone whose current mortgage has a variable or adjustable interest rate. Refinancing provides a fixed rate mortgage, removing the risk of rising interest rates. A few other situations that make someone a good candidate for refinancing include:
If you’re considering a refinance or home equity loan, you’ll want a local lender, like us, that provides both of these financing options. Be prepared to tell them why you’re seeking additional financing, your current income and how long you plan to remain in your home. Ask about loan payment options, any prepayment penalties, what the loan will cost and how long it will take to recoup those costs.
Lean on their expertise to help determine which route is the best fit for you based on your goals. While we hope you choose us, the lender you choose should be a resource in helping you make the final decision.