Home Equity Notes
No-equity home-equity loans were most popular back in the late 1990s, when many lenders boldly offered high-risk loans and borrowers felt comfortable taking on additional debt. More recently, rising home values and attractive interest rates for mortgage refinancing have helped even cash-strapped homeowners avoid such excessive borrowing.
But these loans are still available from DiTech (a division of General Motors), Master Financial and E-Loan, to name a few. And experts say these loans will regain popularity as the economy rebounds, since lenders will once again be more willing to lend to riskier borrowers.
Stay away from lines of credit unless you have the discipline to make the eventual principal payment on time. Lines of credit typically don’t amortize, so you could face a balloon payment at maturity.
With a home equity credit line, you have a maximum loan amount available that you can draw on as you need it, usually by writing a check. Your monthly payment is usually a percentage of the total outstanding principle.
Refinancing is basically taking out a whole new mortgage at the currently prevailing interest rates. Since you have already built up equity in your home you can take out the new mortgage for more than you still owe and use the extra cash for other purposes like home improvements. During times of falling interest rates, this may be an excellent time to refinance your home and save money that you are now sending in towards bank profits.
If you are thinking about refinancing, you should try online sites like LoanWeb or E-Loan to get quotes before checking with your local bank. Just like with any loan or purchase you make it is a good idea to shop around for the best deal and get quotes from as many sources as possible. After all, it’s free to apply at LoanWeb and E-Loan and they just might save you a boat load of cash.
Also, you cannot write off interest on the portion of the loan that is in excess of the value of your home. Which brings up our next point:
Just make sure you CLOSE THOSE CREDIT CARD ACCOUNTS WHEN YOU PAY THEM OFF!
Borrow only enough to payoff the accounts in full. You might not be able to borrow enough to pay off as much as you can but don’t straddle the cash across all your accounts. Use it to payoff your highest interest rate cards, and close them out. A great feature of 2nd mortgages is you can usually write off the interest expenses from your taxes, effectively making the APR even lower. But check with your accountant to make sure your income level allows this.
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