Are you currently a homeowner who is looking to generate some cashflow out of your house? Purchasing a home is more than just the joy of living in a place of your own; it is also a financial investment. When a time of need arises, such as emergency medical treatments, home repairs, or a child leaving for college, the equity in your home can provide a means to access this money. There are two ways you can access these funds, home equity loans Cleveland Ohio and refinancing. Read on to learn more and drill down which one may be best for you.
The Details of Refinancing
Refinancing means refunding your mortgage to get a better interest rate, decrease your monthly payment or get rid of your monthly PMI (private mortgage insurance) requirement. It also offers the option of taking out the extra cash that may be in your home. Refinancing is an excellent decision if you can lower your interest rates and want to stay in your home for at least another year.
Remortgaging your home involves many of the same steps and processes as when you got the original loan. A loan officer pulls your credit score, and employment and income are verified. There are also additional costs included in doing a refi, such as a 2% to 3% closing fee, which includes title costs and appraisals. If you have a large amount of equity in your home, you have the option of adding these costs back into your loan, so you don’t have to pay any additional money upfront.
You also have the option of taking out the equity in your home. By collecting this money, your monthly payment won’t be as low as a simple refi, but you now have access to the funds you need.
Understanding Home Equity Loans
If interest rates are not lower than your original loan or you’re looking to sell your house within the next year, obtaining a home equity loan may be a better fit. This type of loan usually has better interest rates than personal loans but may be higher than current mortgage rates. Just as refinancing has two options, so do home equity loans. The first is a home equity line of credit, and the other is a loan.
A line of credit is best when a borrower only needs a certain amount of money over a longer period of time. When you first receive the credit line, you can borrow as much money as you find necessary. Once that time ends, you need to begin making payments back to the bank.
The final option is often referred to as a second mortgage. This home equity loan uses the collateral in your home to fund another loan. This loan provides a large amount of money in one lump sum and requires monthly repayment. Since this loan is based on the equity in your home, it is also subject to foreclosure.
If you are looking for a way to get money out of your home, consider whether refinancing or an equity loan best suits your needs.