Home Equity Loans
A home equity loan is essentially borrowing money from a bank against the equity that you have established in your home. Home equity is the difference between the fair market value of your home and the unpaid mortgage balance remaining.
If you have an asset worth $1.5 million, and you still owe $750,000 on this asset, then you have an equity of $750,000, or 50%. Simple enough right?
What can you do with this equity? Well, quite simply, you can turn it into cash with a home equity loan! Most banks require you have an equity of around 25% before taking out this type of loan. If your house has been appreciating in value, or you have simply been paying off a significant portion of the loan, feel free to take out a home equity loan and treat yourself to a nice vacation!
What can you do with this equity? Well, quite simply, you can turn it into cash with a home equity loan! Most banks require you have an equity of around 25% before taking out this type of loan. If your house has been appreciating in value, or you have simply been paying off a significant portion of the loan, feel free to take out a home equity loan and treat yourself to a nice vacation!
Adjustable Rate Mortgages
ARMs allow you to choose from several payment types each month. These options include a typical payment of principal and interest, interest only payments, and a minimum payment. These loans can be very dangerous if you can not afford the increasing monthly payments in the future.
Interest Rate: The interest rate for these types of mortgages is usually very low at first (1 or 2%), and gradually rises. After five years there is a recalculation period, which could increase your payments.
Payment Changes: The minimum monthly payment increases continuously. Your payments could end up going up drastically, so be very careful.
Interest Rate: The interest rate for these types of mortgages is usually very low at first (1 or 2%), and gradually rises. After five years there is a recalculation period, which could increase your payments.
Payment Changes: The minimum monthly payment increases continuously. Your payments could end up going up drastically, so be very careful.
Refinancing
Refinancing is essentially taking out a loan to replace the one you currently have, in hopes of getting a better rate. With the recent economic crisis, refinancing and debt consolidation have become very popular. There are many reasons to refinance. The current interest rates are very low, if you entered into your mortgage at a higher interest rate, it would be in your benefit to refinance today. The penalty for breaking a mortgage contract and signing into another one, is usually not nearly as much as the cost of the higher interest rate. The first step to take is to talk to a mortgage professional, they can calculate exactly how much refinancing will save you and whether or not it is the right option for you.
Reverse Mortgages
A reverse mortgage is a special kind of loan insured by the government that converts your equity into cash. Unlike a traditional mortgage where the homeowner is making payments to the lender, the lender makes payments to you. You can choose to receive monthly payments or a lump sum, or even a combination of the two. You are not forced to repay this loan until you sell your house or die. These loans can be expensive and should be used only as a last resort.
Requirments:
Requirments:
- Must be at least 62 years of age
- Must have a good amount of equity in your home
- Must be the primary resident
- No income requirement
- Minimal credit requirements
- Fast cash
Negatives:
- Loans are very expensive, can cost you up to 10% of the value of your home in fees
- Unable to pass home to heirs
- You are still responsible for property taxes and maintenance
Types Of Home Loans
It is very important to understand the terms and conditions of each kind of loan, so that you can choose one that best suits your needs.
- Fixed Rate: Includes a specific loan repayment amount. This type of loan protects you from any interest rate rises.
- Variable Rate: Gives you the flexibility of being able to make extra payments if you wish.
- Introductory Rate: Generally, for the first 12 months your interest rates are discounted.
- Bridging Loan: This loan helps you purchase a home if you are currently in the process of selling your current home, but have not yet finalized the transaction.
- Interest Only Loan: In this type of loan, you are only making monthly payments on the interest.
- Principal & Interest Loan: You will be paying off the interest and actual principal owed on a monthly basis.
