There are many different home equity loan options. Some can be a better solution than others depending on your circumstances, mortgage rates, and what you need the loan for. The PA home equity loan guide detailed below may help you understand your options.
Home Equity Loan Options
A cash-out refinance pays off your first mortgage and replaces it with a new one. The new mortgage covers the amount of the old mortgage, the additional equity you are extracting and any settlement costs. Because you are paying off the existing loan, rather than getting a new one as a second mortgage, the rates may be better than a second mortgage. This is basically a traditional refinance except that you are taking out equity in the real estate. The funds are paid to you in one lump sum. When evaluating a cash-out refinance, compare the interest of your current mortgage with the new one. If the new interest rate is less, then it may be a good solution. Otherwise, you may want to consider other options and retain your first mortgage rate.
Home Equity Loan
A home equity loan is a second mortgage in addition to your first mortgage. With this alternative, you borrow a lump sum of money that you pay back over a specific number of years, either at a fixed rate or a variable one. Second mortgage rates may be higher than first mortgage rates. They also have closing charges similar to first mortgages.
Home Equity Line of Credit (HELOC)
A home equity line of credit typically has an adjustable rate that goes up and down with the prime rate. HELOCs are open-ended, so they operate like credit cards. The lender determines your maximum line of credit. You can access funds up to that limit as needed. Your payment reflects the current balance. As your balance gets paid down, the remaining credit may still be used. Credit limits may be lowered by the lender should significant changes occur in the real estate market.
Review annual fees, cancellation fees, and mandatory minimums or withdrawal requirements. Similar to credit cards, HELOCs can be closed by the lenders at any time. This solution may be good if you are unsure about needing the full amount of the loan. However, keep in mind that the credit limit can be reduced, minimizing the available funds.
PA Home Equity Loan Guide
All home equity loans are determined by the current market value of your property and the amount of existing loans. You can get a sense of whether you have any equity in your residence by calling a local real estate professional for a market analysis. Mortgage companies will require appraisals to obtain a more definitive amount before lending you any money. Be careful not to pull out more equity than you really require. Also ensure that the new loan payments fit your budget. All home equity loans use your home as a lien, allowing them to foreclose if you can not make payments. This PA home equity loan guide is intended as a broad overview. Speak with a local mortgage professional for current interest rates, closing costs, and other options.