The holidays fall at a time of year when many people are evaluating their finances and trying to think of ways that they can improve their fiscal situations. It’s not uncommon to take a look around your home and wonder if you are sitting on money that could be put to better use.
Taking out a home loan to buy Christmas gifts is never a good idea, but if the money will go towards a more worth cause, refinancing or taking out a loan during the holidays can help you meet your goals with a safe and secured line of credit. Using a loan to pay property taxes, consolidate debts or improve your home are all great reasons to look into a holiday home loan.
Home equity loans allow you to borrow against the value of your house. As property values steadily make a comeback in many parts of the country, home equity loans are once again becoming a possibility. Banks are being pushed to make more equity loans as home values make a come back, giving consumers the money they need to get the economy turning once again.
If you want to borrow against the value of your home, you basically have 3 options to choose from, or 4 if you are elderly. Read on to discover your 4 loan options.
1. Home equity loan – A home equity loan is essentially a second mortgage. You can borrow the difference between what you owe and what your home is worth, assuming that the difference is positive. Interest rates for home equity loans tend to be lower than other types of loans and they are usually tax-deductible using a online tax calculator. Closing fees are less than for other types of loans, but the repayment periods are usually less as well.
2. HELOC – A home equity line of credit (HELOC) is another type of loan that takes advantage of home equity. Instead of borrowing one large amount of money, you are authorized up to a certain amount to draw on as needed. These loans are great for projects where you aren’t sure of the exact amount you will need, such as home improvement projects.
3. Cash-out refinance – With this type of loan, you are replacing your existing mortgage with a new loan entirely. You are increasing your balance and pocketing the difference to use as needed. So for example, if your home is worth $250,000, but you only owe $150,000 on it, you can get a cash-out refinance loan for $180,000 and put $30,000 in your pocket for a project, an education or other expenses.
This type of loan can work out nicely if your current mortgage has a much higher rate than the current average. By basically refinancing your loan with a cash-out refinance, you could potentially take advantage of lower rates to work the deal in a way where you get the cash you need without realizing any increases in your monthly payments.
4. Reverse mortgage – A reverse mortgage is aimed at elderly home owners. It allows the individual to borrow a lump sum of money or to receive monthly payments over a length of time. You don’t have to pay these loans back for as long as you live in the home.
The lender gets their money back when you either move or pass away. The interest, outstanding balance and any other charges are taken from the value of the home after it is sold. Any remaining money is divided to you or your heirs depending on the situation.
With all of the different type of equity loans available, it’s possible for home owners to get the money they need to finance their dreams without breaking the bank. Your house is probably your largest asset, so educate yourself in the ways you can make your home work for you.