Home Equity Loans – second mortgage

Melissa Kellett asked:


If you have a mortgage loan and you have requested a home equity loan too, you can refinance both loans and get a single loan and a single monthly payment with the same or better terms than the average of both outstanding loans. This can be achieved by applying for a refinance mortgage loan.

Home equity loans, also known as second mortgages, are secured with the same asset as the primary mortgage loan, thus, when refinancing the home loan, you can include your home equity loan. This can provide you with many benefits like getting fewer monthly payments, saving thousands of dollars on interests, getting lower installments and reducing your overall debt exposure.

Refinancing: Concept

As you probably know already, refinancing consists on acquiring a mortgage loan in order to repay an outstanding mortgage. This can be done because the loan contract specifies that the money will be used to cancel the outstanding loan so the new loan will be the primary beneficiary of the security.

The home equity loan is, in this case, also replaced with the new loan and the new loan amount will be determined by adding up the previous mortgage loan amount and the home equity loan amount.

Saving Money? Getting Ease?

By refinancing you can save thousands of dollars on interests. Home equity loans generally come with higher interest rates than mortgage loans and thus, by obtaining a lower rate refinance home loan you will not only be saving money on your mortgage loan but you will also be saving even more money on your home equity loan.

Also, by refinancing you will unify both loans and get a longer repayment program and lower monthly payments. The resulting loan installments will be undoubtedly lower than the combination of mortgage loan payments and the home equity loan payments. Thus, even if you are indebted for a longer period of time you will get a lot of ease on your financial situation and income.

Refinancing Other Debt: Cash-Out Refinance Loans

A cash out refinance loan is a refinance loan with a higher amount than the outstanding mortgage loan and in this particular case than that of the mortgage loan and home equity loan combined. Once both loans are cancelled, the surplus can be used for any purpose you may think of, including reducing your overall debt.

If you have other debt like credit card balances, personal unsecured loans, pay day loans, student loans, car loans or any other loan, you can use this surplus to cancel your debt and thus, you will be saving money due to the lower interest rate that refinance mortgage loans feature.

This will improve your overall credit situation raising your credit rank and improving your credit history. Your debt to income ratio will also be improved just as your debt exposure. Using a cash-out refinance loan in this way is a smart thing and will do a lot to enhance your whole financial situation. Your ability to get finance will also increase since on your credit report, only a single outstanding and affordable loan will show.



RODRIGO

MIKE SELVON asked:


If you intend to rent a house or apartment your entire life, this audio program may not be of any use to you. But then again, you may find yourself owning a piece of property and wondering what your home equity is and how it affects your house. Each house owner has to deal with home equity from the moment they sign the mortgage papers.

Over the course of the ownership, your equity builds and you might wonder how to benefit from all of those payments. Equity can also help you when it comes time to sell your house and purchase another. For first time home owners equity can be confusing but with a little research and investigation, you can understand the value of your house and how you effect how you build up equity. Keep reading this article to understand how growth affects buying, selling and owning a house.

What is home equity?

Home equity is the amount of monetary difference between what is owed on the home and what the home is worth. It can vary according to what the condition of the home is and how much work you have put into the home. Some times home equity can go up without you doing anything at all.

If the neighborhood prices begin to soar, your equity can rise as well since your assessment and value will rise. Home equity is a great thing to have in case you have an emergency.

If I buy a home, how long should I wait before using my home equity?

You should wait as long as possible before using that equity. You do not want to use it unless you absolutely must because it means another payment you have to make. Yes, the equity is yours but you should only use it in case of emergencies or to pay off other bills that may be draining your finances. Many people will pay off credit card debts, college tuitions, or medical bills with a second mortgage.

How does home equity affect my mortgage?

Unless you refinance your mortgage, your home equity will not really be a factor in it. It will be a factor in whether or not you can take out a second mortgage. Most people, if they have a huge house payment and have built up a sizeable growth, will refinance their loan to a better interest rate and a lower payment. This helps keep their budget more manageable and may even allow them to pay the house off quicker because it allows them to make more payments to the principle.

Does it affect my interest rate?

Unless you refinance your mortgage to a better interest rate based on your available equity, it will not affect your current interest rate. If you have made all of your payments on time and your credit rating has increased, it may be a great idea to refinance your mortgage to receive a better interest rate.

But you need to pay attention to the mortgage company’s interest rate at that time. You definitely do not want to refinance only to find out that you are going to pay a higher interest rate. You also want to stay away from Adjustable Rate Mortgages that have interest rates that change. You could have a low payment one month and the next have one that is suddenly doubled.

What happens to my home when I die?

When you pass on and the proceeds from the home sale exceed the amount left owed the bank or mortgage your heir will receive the profits. If there are still amounts left to pay, your heir will need to refinance the amount and pay off the remaining debt or let the bank repossess the home.



LINWOOD

Dark Magician asked:


I understand equity is value you have built up in your home by making loan payments but why is it required to refinance? Is it because lenders want to see you are in the process of paying off the loan instead of simply refinancing frequently?

Thanks

NATHANIEL