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Written by Administrator
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Saturday, 28 November 2009 01:04 |
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Lenders offer several types of mortgages, but the most common are fixed-rate mortgages. These loans feature fixed rates and monthly payments, generally for 15-year and 30-year periods.
They're popular because:
1. Consumers balk at the thought of their house payment rising and falling with interest rates.
2. Whenever rates are low, fixed-rate mortgages are very affordable.
Fixed-rate borrowers face one major choice: 15-year or 30? For some, a 30-year loan makes more sense. For others, a 15-year one does. Here are some pros and cons of each.
Fixed rate advantages:
- Offers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing.
- Monthly payments are lower than those on 15-year loans because the interest is amortized over a longer period.
- Lower monthly payments free up money that borrowers can pour into investments that yield more than their homes.
- Higher interest bill increases the amount consumers can deduct at tax time, potentially reducing or eliminating their federal income tax liabilities.
Fixed rate disadvantages:
- Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal.
- The overall interest bill is much higher because of the long amortization term.
- The interest rates are higher than on 15-year loans.
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Refinance vs. Home Equity Loans |
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Written by Administrator
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Saturday, 28 November 2009 00:24 |
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 For home equity lines of credit HELOCs , most banks set their rates depending on the shortest term market rate of all, the Wall Street Journal prime rate. It moves in lock step with the fed money rate.
The Fed is now in a rate rising mode. This is pushing rates on home equity lines of credit higher for both new and present borrowers, as HELOCs carry variable interest rates.
But equity loans and lines of credit typically come without closing costs, so they may be $2,000 or $3,000 cheaper than a mortgage refinance.
"It is comparatively rare," said Vickie Hampton, relate professor of family financial planning at Texas Tech University in Lubbock, Texas. "But if you may be able to get as much money as you need with good terms on a home equity loan as you may be able to on a mortgage refinance, and you may be able to get a rate that is nice and lock it in, then that looks like a wise thing to do."
The best equity candidates
So who should go for an equity loan or line of credit rather than a cash out refinance mortgage?
buyers who plan to pay off their loans in a reasonable amount of time and those who do not have to borrow much money make good candidates. that is because banks offer their lowest rates on shorter term equity loans.
Long term equity loans tend to have rates that are higher than fixed rate mortgages, when the prime rate is low. And, customers who need $75,000, $100,000 or more will typically find they need loans with longer amortization schedules to keep their payments cheap. Most equity loans amortize over ten years or 15 years, while many 1st mortgages amortize over as many as 30 years.
Customers who took out 1st mortgages throughout periods of very low rates may want to think about equity loans or lines of credit too. It does not seem right to refinance into a new 1st mortgage at a bigger balance and higher rate and pay a couple thousand dollars in closing costs to do so.
"If you have got a better rate on a 1st trust deed mortgage, something in the 6s thereabouts or low 7s, you do not want to pay off a $100,000 mortgage to take out $20,000 and increase the rate on the whole amount," said Richard West, senior vice president and division manager at San Francisco based UnionBanCal Corp. "You're much better off borrowing $20,000 and keeping the 1st mortgage.
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Home Equity Loan vs. Line of Credit |
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Written by Administrator
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Saturday, 28 November 2009 01:03 |
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There are two types of home equity loans: term, or closed-end loans, and lines of credit.
Both are sometimes referred to as second mortgages, because they're secured by your property, just like your original (first) mortgage.
Home equity loans and lines of credit are usually for a shorter term than first mortgages. The most common type of mortgages runs 30 years, while equity loans typically have a life of five to 15 years.
The loan
A home equity loan, sometimes called a term loan, is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.
The line
A home equity line of credit (HELOC) works more like a credit card. You are allowed to borrow up to a certain amount for the life of the loan -- a time limit set by the lender. During that time you can withdraw money as you need it. As you pay off the principal, your credit revolves and you can use it again. Let's say you have a $10,000 line of credit. You borrow $5,000, but then pay back $3,000 toward the principal. You now have $8,000 in available credit. This gives you more flexibility than a fixed-rate home equity loan.
Credit lines have a variable interest rate that fluctuates over the life of the loan. Payments will vary depending on the interest rate and how much credit you have used. When the life span of a line of credit has expired everything must be paid off. A lender may or may not allow a renewal.
Lines of credit are accessed by specially issued checks or a credit card. Lenders often require you to take an initial advance when you set up the loan, withdraw a minimum amount each time you dip into it and keep a minimum amount outstanding.
Financial institutions negotiate a home equity loan just like they do a mortgage: You have to pay off the loan or line of credit when you sell the house.
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Last Updated on Saturday, 28 November 2009 01:25 |
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Written by Administrator
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Saturday, 28 November 2009 00:58 |
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 Homeowners today treat their houses like piggy banks, readily transforming their equity into cash and credit. You have home equity loans still on occasion called second mortgages , home equity lines of credit and reverse mortgages. Then there is cash out refinancing.
Cash out refinancing explained
With cash out refinancing, you refinance your mortgage for more than you now owe, then pocket the difference.
here is an example: let us say you still owe $80,000 on a $150,000 house, and you want a lower interest rate. You also want $20,000 cash, maybe to use up on your kid's 1st semester at Princeton or to consolidate your other debts. you may be able to refinance the mortgage for $100,000. That way, you get a better rate on the $80,000 that you owe on the house, and you get a check for $20,000 to use up as you wish.
Cash out refinancing differs from a home equity loan in some ways:
A home equity loan is a separate loan over your 1st mortgage, a cash out refi is a substitute of your 1st mortgage.
The interest rate on a cash out refinancing is typically, but not generally, lower than the interest rate on a home equity loan.
A refinancing means you must pay closing costs, you do not have to pay closing costs for a home equity loan. Closing costs can amount to hundreds or thousands of dollars.
Is cash out refinancing right for me?
if you want to extract a chunk o' change from your three bedroom piggy bank, how do you choose if a cash out refi is right for you?
It depends on how much you could save each month and what you want to use up the money on.
let us take the example of the mythical Jack and Jill Bankrate. They took out a $100,000 mortgage on a $130,000 house in early 1992. Their interest rate was 9.95 %, making their monthly payment $873.88 plus taxes, insurance and other extras .
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