If you're wondering whether or not you should tap the equity in your home for a loan, you may have discovered that there are a few different ways you can borrow that money. For example, you can borrow it as a home equity line of credit, or HELOC, which, similar to a credit card, allows you to draw off the balance over and over again. On the other hand, a home equity loan, sometimes referred to as a Second Mortgage, pays you the amount you borrow in one lump sum, and you can't access it again without taking out another loan. So, is an equity home loan second mortgage right for you? Probably, if you can answer "yes" to these questions:
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Do You Have Significant Equity In Your Home?
Most lenders allow folks to borrow
up to 80% of the equity in their home. The equity is the value of your home
minus any amount you still owe on it. So, if your home is worth $200,000, and
you have $100,000 left on your current mortgage, you have $100,000 in equity.
Since you can usually borrow up to 80% of that amount, the maximum amount of
your loan will be $80,000. Do your own math to calculate if you have enough
equity in your home to borrow enough to meet your needs.
Do You Need One Lump Sum?
If you're paying for college, buying a car, remodeling
your home, or need the cash for a medical bill, chances are one lump sum payment
will be sufficient. However, if you'd like to use the cash for an emergency
fund, or if you'll be making small repairs to your house over a long period of
time, it might be better to choose the home equity line of credit since you can
borrow from it over and over again.
Can You Make Payments?
With any home equity loan second mortgage refinancing,
your home is used as collateral on the loan. That means, if you can't make payments on
time, and you default on the loan, the lender may be able to take your house.
You should only choose a home equity loan if you're certain that you'll be able
to make all your payments in the future.
An equity home loan second mortgage is a smart idea for responsible borrowers
who need an inexpensive, quick loan. You can check with your current mortgage
lender to find out if you qualify for the loan, or you can search online for
home equity lenders.
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