(ThyBlackMan.com) Recently we have witnessed a boom in the economy, seeing the stock market continue to rise, gas prices remain affordable, but more importantly, home values are continuing to improve. That is completely flipped from a decade ago when we found homeowners underwater as values rapidly declined, as we noticed with the amount of foreclosures in each neighborhood. As the mortgage payment is made each month, bringing down the balance little by little, you are building equity. While rates may not be at historic lows any longer, it’s still a great time to take out a mortgage to borrow from the equity in your home, but which is best?
How Do I Know How Much Equity I have?
You can do a quick loan-to-value calculation by reviewing your current mortgage statement and using an online home value estimator since you don’t have an appraisal yet at this time. For example, you owe $120,000 with a value of $200,000, your LTV would be 60% after dividing the two. Typically, you’re able to borrow up to 80%, so that leaves a 20% window, or $40,000 that you can apply for. Stop by an informative site like Home Equity Wiz for further explanation on the calculation behind these loans.
What Can I use the Funds For?
The great thing about taking out the equity you have built up in your home is exactly what it sounds like; it’s your equity. With that in mind, you can actually use the funds to your discretion. The common uses include funding a home improvement project such as redoing a kitchen, bathroom, or basement, while other use for debt consolidation or even taking the family on a once in a lifetime vacation. There is no right or wrong answer, as each financial situation is different, but keeping your loan term financial goals should be a priority, without setting yourself back.
Now Which Mortgage is Best for Me?
While you can certainly travel down the path of a cash-out refinance, but if you remember the mortgage process when you purchased your home, you can look forward to providing seemingly endless documents, while paying closing costs to the lender and title company. The plus is, that you can take out a 30-year mortgage, so that any new loan amount will be spread out at that length, instead of half the time and higher payment difference with an equity loan.
With that in mind, taking out an equity loan can be a more streamlined process, provided you have equity built in your home, and have the credit and income qualifications. The paperwork at closing will be less, and more importantly, the costs of securing the loan will be as well. If you decide the equity loan route, there is also another layer to factor in, which is an equity line of credit. While an equity loan features a typical loan parameters such as fixed payments over the terms, an equity line of credit is a little different, in that it works like a credit card where you are approved for a line amount, and you can borrow as-needed, and only pay back the balance, instead of the full available credit. The interest rates are typically variable as well, so you’ll need to be aware that payments can fluctuate based on the market rate, plus the margin, if that factors into your decision.
Staff Writer; Steve Poole
