There are several different home equity loan options. Some can be a better alternative than others based on your circumstances, mortgage rates, and the purpose of your home equity loan. The Pennsylvania home equity loan options detailed below will help you understand your options.
Home Equity Loan Alternatives
A cash-out refinance pays off your first loan and creates a new one. The new loan includes the balance of the old mortgage, the additional funds you are taking out and applicable settlement costs. Because you are eliminating the existing loan, rather than taking out a new one as a second mortgage, the interest rates may be better than a second mortgage. This is essentially a typical refinance except that you are extracting equity in the home. Those funds are given to you in one lump sum. When reviewing a cash-out refinance, compare the mortgage rate of your old loan with the new one. If the new interest rate is lower, then it may be a good solution. Otherwise, you should consider other options and preserve 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 amount of time, either at a fixed rate or at one that may increase or decrease after a certain period. Second mortgage rates may be higher than first mortgage rates. Settlement costs also still apply.
Home Equity Line of Credit (HELOC)
A home equity line of credit traditionally has an adjustable interest rate that goes up and down with the prime rate. HELOCs are open-ended, so they are similar to credit cards. The lender identifies your maximum credit limit. You can borrow money up to your limit as needed. Your payment reflects the running balance. As your balance gets paid down, the remaining credit may still be withdrawn. Credit limits may be reduced by the lender when significant changes occur in the real estate market.
Review annual fees, cancellation fees, and mandatory balances or withdrawal requirements. Like credit cards, HELOCs can be closed by the lenders at any point. This option may be good if you are unsure about needing the entire loan. However, be aware that the credit limit can be reduced, limiting the total funds available.
Pennsylvania Home Equity Loan Options
All home equity loans are determined by the market value of your real estate and the amount of existing loans. You can get a sense of whether you have any equity in your property by calling a local real estate consultant for an estimate on its value. Mortgage companies will require appraisals to determine a more exact amount prior to approving the loan. Think twice before pulling more equity than you actually need. Also ensure that the new loan payments are within your budget. All home equity loans use your property as a lien, allowing them to foreclose if you are unable to make payments. This Pennsylvania home equity loan options is for reference only. Speak with a local mortgage consultant for relevant interest rates, closing costs, and other alternatives.