Home Equity Loans

So you’ve made the decision to use your equity in your home as security for a loan. Now you have to decide exactly what type of loan to take out. With the many choices for borrowing against your home, the decision can be a confusing one, and the wrong one can cost you money you shouldn’t have to spend. If you’ve decided to cash in on the equity in your home, but not exactly how to do it, let’s take a look at some of the options available to you.

Mortgage Refinance (A Cash-out Refi)
For many people, the most attractive option is a cash out refinance, often referred to as a ‘refi’. A refinance isn’t technically a home equity loan, or a second mortgage. It’s a replacement mortgage. When you refinance your mortgage, you use the money to pay off your existing mortgage and make payments on the new one instead. When should you consider a refinance?

Home equity is essentially the amount of your house that is paid off. In other words, your home equity is the value of the house (not the value of the last sale, but the actual appraisal value) less the amount that is currently mortgaged. Your home equity can be used to help get you loans and line of credit, or you can simply let it accrue.

Your home equity can be a wonderful tool to help you accomplish things like remodels, pay for your education or that of your kids, or even take a vacation and forget about the world for a while. The home equity line of credit is not specific in possible uses. In fact, you can use it for anything you want to, just like a regular credit card.

Is the equity in your home sitting there untapped while you take out high interest loans to finance your education? With interest rates on home equity loans dropping, this is a good time to reassess your financial strategy for education. While traditional wisdom from the financial experts suggest that borrowing against the equity in your home should be a last resort, that advice hasn’t kept up with the times. The fact is that today’s low interest rates make home equity loans an affordable alternative for those who can’t qualify for government subsidized student loans.

When should you consider a home equity loan for educational purposes? In general, the interest rates on home equity loans are higher than those on federally subsidized loans like the Stafford and PLUS loans, but not everyone can qualify for those. When compared to most private education loans, home equity loans are considerably lower. Before deciding that you should use a private education loan just because it’s labeled as being for your education, do a point by point comparison – then choose the cheaper loan. Don’t forget to include any fees into your cost calculations when comparing the cost of education loans versus a home equity loan.