| Equity and Refinancing |
| Home equity is the difference
between what your property is worth, known as your home
value, and how much you currently owe on your mortgage. |
| |
| Home
Value |
$100,000 |
| Owed On Mortgage |
- |
$60,000 |
| Equity
In Home |
$40,000 |
|
| |
Home
Equity Line of Credit
Borrow money as you need it up to the full amount of equity
in your home. Each time you pay principal on your mortgage,
it frees up that amount of your credit line for later use. This can be a good
safety net for unexpected expenses or emergencies. Advantage:
Lower interest rates than most unsecured credit lines (i.e.,
credit cards).
Home Equity Loan
Get entire loan amount right away as a lump sum. Cannot reuse
this loan. Excellent choice for one-time planned expenses or
to consolidate debts you already have. Advantage: Low payment
options available through a variety of terms. |
| |
| Ways to Use Your Equity |
| 1. |
|
Reduce
monthly payments by consolidating debts on credit cards
and other consumer loans, lowering the interest rate,
and exchanging compound interest for simple interest |
|
| 2. |
|
Reduce your tax burden
by exchanging nondeductible interest (such as interest
on credit cards and car loans) for loan interest that
may be fully tax deductible (see your tax advisor for
complete details) |
|
| 3. |
|
Get better terms on a
home purchase or refinance loan by using home equity as
part of your down payment |
|
| 4. |
|
Get ready cash for investment
opportunities, unexpected purchases or emergencies as
they come up (lines of credit only) |
|
| 5. |
|
Take cash for a specific
reason, such as remodeling, college tuition, a new car,
or a vacation |
|
| |
|
| |
| Refinancing is to obtain
a new loan to pay off an existing loan, or to pay off
one loan with the proceeds from another. It is common
to refinance when interest rates drop and/or the property
has appreciated in value. |
| |
| The most common
reason for refinancing is to save money. Saving
money through refinancing can be achieved in three
ways: |
| 1. |
|
By
obtaining a lower interest rate that causes one's
monthly mortgage payment to be reduced. |
|
| 2. |
|
By
reducing the term of the loan, thus saving money
over the life of the loan. For example, refinancing
from a 30-year loan to a 15-year loan might result
in higher monthly payments, but the total of the
payments made during the life of the loan can be
reduced significantly. |
|
| 3. |
|
Consolidate
debts and replace high-interest loans with
a low-rate mortgage. The loans being consolidated
may include second mortgages, credit lines,
student loans, credit cards, etc. In many
cases, debt consolidation results in tax savings,
since consumers loans are not tax deductible,
while a mortgage loan is tax deductible. |
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