Thursday, August 16, 2012

Using Your Home Equity

The equity in your home is the difference between what you owe on the home and what it is worth. For example, if you owe 0,000 on a home and it is valued at 0,000. You have ,000 equity in the home. Usually, lenders will only allow 80% of the equity to be made available for a loan. Understanding how your home equity can be accessed is critical for both new and experienced homeowners.

Some reasons to borrow against your equity include:

*Home remodeling
*Purchasing a car
*Paying for a college education
*Paying for medical bills
*Consolidating debts

Most home equity loan interest payments are allowable as a tax deduction on your personal income tax. Check that with your lender and accountant.

Using a Home Equity Calculator

There are many sites on the internet that feature a home loan calculator (There are several free calculators on the Sail Mortgage site found HERE). In order to use a calculator, you will need the following information:

Value of the home: you will need to know the current value of your home. There are several ways to determine this:

Get an appraisal (in most cases, you will need to get one anyway as part of the loan process).

Contact a realtor to see what homes in the area are selling for (not the listing amount, the actual selling amount).

Check on Zillow or other online home value sites for a rough price of homes in your area.

Mortgage remaining: Determine how much you have left to pay on your mortgage. As suggested above, keep in mind you will only be able to borrow a pre-determined percentage of that amount (usually 80% or less).

Current payments: Know your current loan payment (mortgage and interest only). Your property taxes and insurance payment amounts will not be impacted by a home equity loan.

Term: Decide how long you want to take to pay the loan back. The longer you take to pay it back the lower your payment will be. However, you will have to pay more in total on the loan.

Amount to be borrowed: Decide how much you would like to borrow.

Interest rate: Select an interest rate for the new loan.

Closing costs: Just like in your first mortgage, you will incur fees (appraisal fee, loan origination fee, another title search, etc.) during the processing of the loan. The closing costs of the first mortgage will give you an idea of what and how much they will be. You can pay the fees outright at closing or have them rolled up into the loan.

Points: Check to see if the loan you want comes with points which are typically one percent of the loan amount.

Remember, borrowing against your equity is an important financial decision that shouldn't be made lightly. To find out more information about using the equity you've earned in your property or home, call a professional mortgage lender now.

No comments:

Post a Comment