After I entered the job force at 18, I had money problems for quite a number of years. I earned a decent income, but I lived paycheck to paycheck and just felt like I would never get ahead financially. One day, determined to get ahead, I decided to record every purchase I made for a month to find out just where my money was going. I learned a hard lesson that day that small purchases here and there throughout the month really add up. I committed to a much smaller budget and began stashing savings away. Then, I researched the world of investing and made a few strategic ones with some of my savings. I am now doing much better financially, and I want to help others who need it, so I am starting a blog. Come back often for money management tips and tricks explained simply!
If a situation has recently arisen that will benefit from an influx of cash and you are eligible for new financing options from your bank, two of the more common options for obtaining those funds are the home equity loan and refinancing the existing financial arrangement you have in place to buy your home. While there are several similarities between the two, they present with some unique characteristics that every responsible homeowner needs to be aware of. Therefore, when you need to make the most appropriate financial choice for your needs, it's best to consider the information discussed below:
Understanding The Basics Of A Home Equity Loan
A home equity loan can be favorably compared to the mortgage you currently have on your home but is not added to that existing loan. Instead, it's a second mortgage, which means it's considered to be a secured loan and upon approval, the funds are typically given to you directly. One of its more popular benefits is that it often presents with reduced closing costs. The flip side of that concern is that a home equity loan is usually seen by lenders as being a higher risk investment, which means that your interest rate is usually going to be higher than it is for your existing home loan.
It is important to remember that as with any debt, it's never a good idea to borrow more than what you need or what you can afford to pay back. Any loan against your home or its value could put you at risk of losing it if you cannot pay it back as expected.
Opting To Refinance Your Home
Refinancing your home involves the use of a new agreement, often permitting for the equity you have already accrued in your home to help you to reduce your payments. One option is the streamline refinance, which is often easier to get than an original or second mortgage, with fewer credit requirements. However, you cannot access the money your home has accrued directly. That means that you will not be able to get a check from the bank to help you pay off other bills or improve the home in some way, but a lower payment might permit you to instead use some of your own money for those endeavors.
A rate and term refinance is another option, but can be harder to get than the above option. You also cannot get money from the transaction but can be a very flexible loan since you have more options for customizing it. For instance, you can use this option to extend your loan and thus, reduce your payments. However, some people opt to modify their existing loan in order to raise their payments, which has been the right choice for some homeowners who want to pay off their home faster and have the means with which to do so. This option is unique because the amount of the mortgage itself remains unchanged, even though the pertinent interest amounts over the time period of the loan.
In conclusion, both a home equity loan and refinancing your existing home loan can permit you to access additional funds from your home. Since they are similar and not identical, you are likely to find the above information to be quite useful when making that big decision.
Contact a company like General Electric Credit Union for more information and assistance.Share
11 August 2017