A Look at Refinance And Home Equity loans

Sometimes it pays to have a look at refinance and home equity loans. Understanding how they work can sometimes be crucial to your situation. If you intend to borrow using the equity in your home as collateral, then you are involved in a home equity loan. This is not exactly the same as a home equity line of credit.

They both use the equity in your home for collateral, but the line of credit is used as an ‘open end’ loan, similar in ways to having a credit card. It can be used more than once, and the principal balance goes down by payments. But the home equity loan is given in one lump sum and no chance to borrow any additional funds against it.

Home Equity loans

There are a few benefits to getting a home equity loan. One is the ability to increase your tax deduction as a homeowner. Some people use these loans for paying off their credit cards. But some of the financial experts will advise you against this use of the loan. The reason is that your credit cards, if you should default on payment, are unsecured, and therefore you can settle for a lower amount if something happens to default you. But with the home equity loan, with your home against it, if you default, you could lose your home. What you are doing when you pay off the credit cards with these loans, is trading unsecured debt for secured debt.

Whenever you begin to determine the equity in your home, you’ll find that the process is pretty simple. You just take the remaining mortgage balance and subtract it from your home’s appraised value. Say your home’s appraised value is $400,000 and the remaining balance of the mortgage is $200,000. Then your equity is $200,000. If you apply for a home equity loan, then the lenders will take that figure and the appraisal and use them to determine home value in relation to your loan. You past credit history will play a part as well. Your current employment, time at the job, wages and your debt will also factor into the mix.

One of the most common uses for the home equity loan, is for funding a college education. Others are for paying necessary medical bills and expenses, and sometimes even for purchasing a second home. If you should decide to take out one of these loans, be sure to shop around online. Get as many quotes as you can, and comparison shop to try to nail down the best loan for your situation.