Home Equity Loan or Second Mortgage: How does it work? Part 1 ( Video Blog for Home Owners)
Make you home to work for you in times of need. Which one has better rates Home equity loans or second mortgage?
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PRUDENT FINANCIAL SERVICES (PFS) opened in 1984, specializing in the lowest cost same day personal and vehicle title loans for people with bankruptcies, proposals or bad credit scores in Toronto and GTA. Prudent was the first to offer bankruptcy loans in Ontario.
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Don’t be fooled by the claims of pay day loan places or other bad credit loan competitors. Prudent has the lowest rates for bad credit loans in Toronto and the GTA.
Our loans are all open and repayable at any time. We offer on-line and same day financing. No upfront fees.
Prudent helps to rehabilitate credit for discharged and undischarged bankrupts, people with proposals almost paid off and people with bad credit histories.
Prudent reports all your Prudent loan payments to credit bureaus. But Prudent cannot “fix” or “repair” your credit. The credit bureau reports on the totality of your credit activities. The bureau updates regularly on your payments on credit cards, utilities, taxes as well as to banks, finance companies, credit unions etc. Prudent does try to educate its credit-challenged customers on wiser management of their financial affairs using information from responsible financial sources such as Bankruptcy Canada, Industry Canada, Credit Canada Debt Solutions, and BDO.
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HELOC Vs Home Equity Loan: Which is Better?
What is the difference between a HELOC (Home Equity Line of Credit) VS a Home Equity Loan? Are they the same thing? Which is Better? We'll address those questions in this video! Enjoy!
Recommended Video - How To Pay Off Your Mortgage in 5 To 7 Years:
Let's first talk about the Home Equity Loan. A Hom Equity Loan is very similar to your traditional mortgage in ways that:
A.) You get all the money upfront at the loan closing.
B.) It is amortized anywhere between 5 to 30 years,
C.) It is closed-ended loan meaning that you can only pay back the loan and you typically have a fixed monthly payment and
D.) Home Equity Loans are typically borrowed as a 2nd position lien/loan.
I'm personally not a big fan of the Home Equity Loan as it restricts you from being able to access the equity all over again much like the HELOC and unlike the HELOC products, Home Equity Loans are usually a one-off loan product that's often used to spend money on education, home improvement, and personal spendings which can or can't be good.
In comparison, a HELOC (Home Equity Line of Credit) is a revolving line of credit. You can:
A.) Access the funds, pay it back, and re-use the principal portion of the HELOC. This is called being open-ended.
B.) The Draw period of the HELOC is NOT amortized which is useful when using our Debt Free Acceleration strategy to pay off your amortized loans.
C.) HELOCs use a different interest calculation versus the amortized interest calculation which can be used as an advantage when using our Debt Free Acceleration Strategy.
D.) HELOCs CAN be 1st or 2nd position lien on your property which offers some flexibility with the amount of equity you build for later investment purposes.
As you can see, I'm a bigger fan of the HELOC when USED PROPERLY and WISELY... A HELOC can be dangerous and destructive to your financial well-being WITHOUT the proper education on how to use such tool. Remember, no loan product is ever bad. The user of the loan product makes it bad through their lack of financial literacy, awareness, and education.
To learn more about our Debt Free Acceleration strategy to eliminate your debt completely, watch our 28-minute explainer video right here:
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Home Equity Loan VS Mortgage - What You Should Know
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Home equity loan vs a mortgage. What is the difference's? Should you stay away? What are the benefits.
Second Mortgage vs Home Equity Loan
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Home equity loan or second mortgage - Part 1/2
Your Second Mortgage Is a Home Equity Loan
The home equity loan allows you, as a homeowner, to borrow money while using the equity on your house as collateral. The lender advances the full amount of to the loan to the borrower, and it is paid back with a fixed interest rate over the term of the loan. This is sometimes referred to as a second mortgage, because it is a new loan using the same property as collateral.
It’s important to understand what equity is, before borrowing money against it. Equity is the difference between what your home is worth and what you still owe on the mortgage; it can be seen as a percentage of the property that you own. In most cases, lenders prefer that you own at least 20% of your home before applying for a home equity loan.
Home equity loans can be very beneficial. The interest you’re paying on the loan is tax-deductible—unlike the interest on credit cards—which is why so many homeowners use them to pay off their credit cards. The interest rate is also lower than most other personal loans, which is why people use home equity loans for large expenses like renovations, medical expenses, or tuition payments.
Even though it works similarly, this is not a replacement loan for your mortgage. You are liable to make payments for both loans, or you risk foreclosure on your home.
Mortgage vs equity loan vs equity line
Learn the ins and outs of Mortgage vs Home Equity Loan vs Home Equity Line.
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What good is having equity in a home if you can't access it? Is a home equity loan/line only good as a 2nd loan? Can you refinance a mortgage with an equity loan?
The pros and cons of mortgage refinance vs home equity loans/lines.
Which Is Better: A Home Equity Loan or Line of Credit?
So you need some money. Which is better a home equity loan or a home equity line of credit?
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Should You Refinance and Cash Out or Get a 2nd Mortgage
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Teresa Tims President of TDR Mortgage in Upland CA Breaks down what you should do when considering a Cashout Refinance or a Home Equity Line of Credit (HELOC) in California.
1) Evaluate what your payment and cash out amount would be if you refinanced and got cash out VS. what the payment would be if you got a HELOC loan.
2) Look at the cost of the Refinance also. How much are you paying to access the cash that you are getting, Exclude the Taxes, Insurance, and overall impounds and interest per day. Look at the lender fees and title and escrow ONLY. This is the real cost.
2) Evaluate the Term of the 2nd Mortgage Heloc. Is it adjustable? Is it for a 10, 15, 20, or 30-year term.
3) How long have you had your current loan? Is it worth Starting over with a whole new loan or better with a short term Heloc?
4) Are you the type of person that is ok with the risk of an adjustable rate mortgage or does a fixed rate home loan provide more security for you. Its Widely predicted Home Loan Rates will be on the rise in 2018.
That's it, it's pretty darn easy. Additional Info;
Traditional cash out home loans will only go to 80% Loan to Value. That means you need 20% equity to access any equity in your home.
TDR Mortgage can go up to 89.99 % LTV in certain circumstances where alternative financing options can be used. It's pretty pricey and most people choose not to use this option and wait until they have a little more equity.
I can help you look at all of these options with an open mind and provide an opinion based on a true analysis of what is in your best interest. Call me at 909.920.3500 to get started today.
Teresa Tims, TDR home loan mortgage company is a trusted provider of home loan mortgages and home refinance Compare mortgage rates on a home refinance, VA loans, FHA loans, Jumbo loans, conventional loans, reverse loans, first time home loans, 1st time buyer loans, USDA loans, CalHFA loans and Chdap loans and Calhafa loans. We serve Southern California including Upland, Rancho Cucamonga, Fontana, Rialto, Chino, Chino Hills, Mira Loma, Eastvale, Ontario, La Verne, Claremont, Montclair, Pomona, Riverside, Corona, Glendora, San Dimas, Los Angeles, Orange County, Coachella Valley, the High Desert and San Bernardino.
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Teresa Tims, TDR Mortgage and/or TDR Real Estate Group is an equal opportunity lender and any mention of rate or term is an estimate only and could vary based on many variables such as credit score, equity position, sales price etc. We are an equal housing lender.
Home Equity Loans vs Second Mortgage vs Mortgage Refinance - Clover Mortgage Inc.
If you're a homeowner and need extra cash you may have several options available to you. Should you get a home equity loan, or should you take out a second mortgage, or refinance your existing first mortgage? Making the right decision can be difficult.
This is why Steven Tulman, the President of Clover Mortgage Inc. made this quick video to help you better understand your options and difference between them.
For more information or for help understanding which option is right for you, call to speak with one of our licenced and knowledgeable mortgage brokers at 416-674-6222 or email us at info@clovermortgage.ca
Home Equity Loan vs HELOC (Home Equity Line of Credit) - Which is Better?
Our real estate financing hub:
Home Equity Loans vs. HELOCs: Which One Should You Choose?
0:33 - What is home equity?
1:28 - What is a HELOC (home equity line of credit)?
2:26 - What is a home equity loan?
4:37 - Cash out refinance
There’s often confusion between home equity loans versus HELOCs -- or home equity lines of credit. Both let you tap your home equity for cash but they function quite differently.
Before we go into that, let's first talk about home equity.
Put simply, equity is the share of a home or property you actually own. To calculate how much equity you have, start with your home’s value and then subtract your remaining mortgage balance.
You can use the funds to pay for home renovations, medical bills, tuition costs, or any other expenses you might have coming your way. You can also use home equity products to consolidate and pay off higher-interest debts like credit cards and personal loans.
You can think of HELOCs a bit like a credit card, they act as a line of credit and you can use the money whenever you like. A HELOC can be an alternative to a credit card which could carry a double-digit annual percentage rate.
You can withdraw funds over an extended period of time called a draw period. This can last up to 10 years. During this time, you’ll typically make interest-only payments on only the amount of money you’ve taken out (not your full credit line).
After the draw period is up, you’ll enter the repayment period, in which you’ll start to repay the money you borrowed plus interest. This period usually lasts from 10 to 20 years.
HELOCs typically come with a variable interest rate, meaning the rate will fluctuate over time. You’ll usually get a low promotional rate at the beginning of the loan, and the rate will increase as you get into the repayment period.
A home equity loan is like a traditional mortgage loan in that you’re given a lump sum all at once, rather than a line of credit you can draw from at will.
Home equity loans act as second mortgages, meaning you’ll need to make two mortgage payments each month.
You then pay the balance back month over month across your loan term, which typically ranges from five to 30 years. Because home equity loans can give you access to large amounts of cash at once, they’re often a smart choice if you have a big expense you’re dealing with.
The biggest downside of using home equity products is that you are potentially putting your home at risk. Since home equity products use your property as collateral, you could find yourself in danger of foreclosure if you fall behind on payments.
There are also costs to consider. Home equity products come with closing costs and fees. On HELOCs, you might even see fees each time you make a withdrawal. These can add up over time, especially if you expect to make several transactions over time.
Choosing between home equity loans vs. HELOCs comes down to how much money you need, how predictable your expenses are, and your current financial limitations.
The first thing you’ll want to think about is what you intend to use the money for. Generally speaking, a home equity loan is going to be best if you have a large, predictable, one-time expense to cover, like a new roof, a major car repair, or consolidating other debts.
If your costs are less predictable or you expect them to recur over time (like tuition bills or medical treatments), a HELOC may be a better option, as it allows you to pull funds as needed across an extended period of time.
Next, think about your financial situation. How predictable is your income? Do you need consistent payments that you can easily budget for, or can you afford more fluctuation?
If you need consistency, a home equity loan is your best bet. These come with fixed interest rates and predictable payments for the entire loan term.
If you’re set on tapping your home equity, HELOCs and home equity loans aren’t your only option. You might also consider a cash-out refinance. This allows you to replace your existing mortgage loan balance with a new, larger loan. You then take the difference between the two in cash, which you can use toward home improvements or any other expense, just like HELOCs and home equity loans.
Use your home equity wisely
Tapping into your home equity is not a decision to be made lightly. You probably don't want to use your home equity to finance luxury items.
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Home Equity Loan or Second Mortgage: How does it work? Part 2 ( Video Blog for Home owners )
Make you home to work for you in times of need(Part two).
If you need money on an urgent basis, which one is a better solution? Home Equity Loan or A Second Mortgage?
Like our Blog?
Join Free Smart Money Club
PRUDENT FINANCIAL SERVICES (PFS) opened in 1984, specializing in the lowest cost same day personal and vehicle title loans for people with bankruptcies, proposals or bad credit scores in Toronto and GTA. Prudent was the first to offer bankruptcy loans in Ontario.
You can get in touch with us by phone or by applying online at
We’re happy to answer any questions or to schedule an appointment with you.
Don’t be fooled by the claims of pay day loan places or other bad credit loan competitors. Prudent has the lowest rates for bad credit loans in Toronto and the GTA.
Our loans are all open and repayable at any time. We offer on-line and same day financing. No upfront fees.
Prudent helps to rehabilitate credit for discharged and undischarged bankrupts, people with proposals almost paid off and people with bad credit histories.
Prudent reports all your Prudent loan payments to credit bureaus. But Prudent cannot “fix” or “repair” your credit. The credit bureau reports on the totality of your credit activities. The bureau updates regularly on your payments on credit cards, utilities, taxes as well as to banks, finance companies, credit unions etc. Prudent does try to educate its credit-challenged customers on wiser management of their financial affairs using information from responsible financial sources such as Bankruptcy Canada, Industry Canada, Credit Canada Debt Solutions, and BDO.
Business Hours
Monday to Friday
9am - 5pm
Saturday
9am - 1pm
Sunday
CLOSED
What is the Difference Between a Home Equity Line of Credit (HELOC) and a Second Mortgage?
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Transcript
What is the difference between a home equity line of credit and a second mortgage? A second mortgage is no different than your first mortgage where it's a 20-year loan typically is what a second mortgage is. It's a traditional loan where it's like an installment loan or an amortization schedule-type loan. It's no different than your first mortgage.
Where a home equity line of credit is associated to that equity above and beyond your first mortgage. You're only going to pay interest on what the balance is at the end of that day. Where again, a second mortgage has a fixed payment, a fixed rate, for a set period of time. Where a home equity line of created allows you ... it's open-ended so you can put all your money into it, pay your bills out of it, and it allows you to explode through that debt extremely fast compared to a second mortgage. Now if you liked this video, be sure to like here, subscribe to our channel. Take care. God bless. You guys are still here. Awesome. Click somewhere on this screen. I'm not really sure where. I've picked out two more videos that I believe you'll find a lot of value from. Take care. God bless.
How a Home Equity Loan Works!
You're building up equity in your home as you pay down your mortgage each month and the real estate market appreciates. At some point, you may want to tap into your home equity. Let's review how a home equity loan works and what is a home equity loan exactly to see if it's right for you!
#HowAHomeEquityLoanWorks
In practice, I share with my clients to simply #JTAB = Just Take a Breath it'll be alright as we move forward together. Remember, FEAR = False Evidence Appearing Real. What's the best way to replace FEAR? With knowledge and you're doing that right now. Kudos!
What you'll learn:
1. Home equity loan explained!
2. Second mortgage vs home equity loan!
3. Should I get a home equity loan?
NOTE: To adjust video speed for your listening/ viewing pleasure, please use the settings icon on the bottom right of your screen. It looks like a gear. =)
Timeline:
1. 1:30 - How a home equity loan works!
2. 2:01 - Home equity loan vs HELOC!
3. 3:47 - How do you pay back a home equity loan?
4. 5:11 - Pros and cons of a home equity loan!
5. 7:51 - How to get a home equity loan!
6. 8:38 - How to get a home equity loan with bad credit!
7. 10:11 - It comes down to your Loan-to-Value (LTV) ratio!
8. 11:21 - Beware of red flags!
9. 12:56 - Home equity loan alternatives!
Thank you for watching! =)
Enjoy an amazing day!
Andrew Finney
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AndrewFinneyTeam
Disclaimers/ Credits:
At the time of production, Andrew Finney, S.0173260, is a real estate salesperson with King Realty Group in Las Vegas, NV.
Andrew's videos are his own and do not necessarily represent the views and/ or opinions of KRG.
The purpose of Andrew's videos are to educate you and help you make sense of the real estate process. If you have questions about home loans, real estate, taxes, financial advice, real estate law, insurance, professional trades, or any other services where you live, you are advised to reach out to the appropriate professional for further counsel about your own unique situation.
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Second home mortgage vs investment property mortgage. What’s the difference?
In this episode, as we often do, we talked about mortgages. There are two different types of financing we do outside of that for primary residences — second homes and investment properties. For the full story, be sure to listen to the full podcast above or on Apple Podcasts. For now, let’s get into the overview.
A second home is not always a second home.
We recently had a borrower ask us if they could buy a house here in the Valley for their son to live in as a second home. They weren’t even going to charge him rent. Unfortunately, he can’t do this. A second home is not so simple as a second home that you own. It is a specific categorization. A second home loan is for someone who is going to be occupying the home for part of the year, 50% or less.
Where we are in Phoenix, people tend to escape up to the north to their cabins and second homes, so vacation homes are what we most often deal with if we’re going to do a second home. Typically, second homes are considered places of leisure, a place you go for a small part of the year. When you apply for these loans, you’re going to have to write a letter explaining why you’re buying this place and why you’re making it a second home. Your intentions will have to be clear and believable.
Let’s look at another example.
Say, it has nothing to do with vacationing and you purchased a home so you could take care of a member of your family. In certain circumstances that’s totally fine. If you live in Phoenix and you’re taking care of a family member in Tucson, you can categorize it as a second home given that you spend time living there. But if you’re in Phoenix and, say, your grandmother lives 30 minutes away from you, you can’t buy a house next to her and call it your second home.
It’s all about the intent. If you intend to occupy it as a vacation home, what you do with it the other remaining part of the year is up to you. But if your intention is to call a lender and to tell them that you want to get second home when you’re really going to be renting it the entire time, that’s when that stuff can become messy and come around and bite you.
And since second homes is a categorization you can even have a second, second home, which is a bit of a fun — and in many cases useful — fact.
Investment Properties
Now an investment property is any property that you don’t live in. Typically, they’re homes that you rent, but they don’t have to be. Looking back at our first example, you can let a family member live in your investment property.
So, what’s the difference in rates between second home and investment mortgages?
Typically, a second home is going to be very close to what a primary is. There are only a couple of little adjustments, but usually, it’s the same pricing. But, when it comes to investment properties, interest rates are about 1% higher than on a primary residence. Now, that’s in a typical market, but right now, in a market when the banks are uncomfortable — recessions, pandemics, etc. — they’ll actually make that delta, that spread, higher. So, right now, you might see about 2%. The reason they do this is that when the markets are unsure, the risk is higher on the investment properties. If the market all of a sudden took a crash, borrowers are going to dump that loan. Before they foreclose or go late on a primary residence, they’re going to go late on an investment property.
Things, such as debt-to-income ratios and loan-to-values, as well, are a bit stricter on investment properties than on second homes and on second homes than on primary residences. But a lot just comes down to a borrower’s history, their credit and job history, and how that impacts the underwriting.
One way, though, to avoid higher interest rates on investment properties is to put more money down. In those cases, the rates go down a bit. You need to put at least 25% down to get better pricing.
Learn More at
•••
Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.
Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.
What's the difference? Home Equity Line vs Loan
Home equity is the difference between your home’s value and what you owe. As your equity grows, you can tap into it to make home improvements or pay off higher interest debt.
Two common ways to tap into your home’s equity include a Home Equity Line of Credit or a Home Equity Loan.
Learn more at
Should I Get a Home Equity Loan or a Cash-Out Refinance to Buy a New Property? [#AskBP 078]
On this episode of the #AskBP Podcast, Brandon shares his advice for a listener who isn't sure what the best loan product to pursue for his new property. Discover the major reason Brandon would choose one of those options over the other!
Get a Second Mortgage on Your Home
Second mortgages are a popular way for homeowners to get approved for a loan. If you are sure you will be able to pay back the loan, it can be a fairly secure financial decision. However, you should do some homework and serious number crunching before signing on the dotted line. Knowing your equity and credit history will help you find the lowest interest rates and fees. You can also calculate how much money you can expect to borrow based on your equity and the appraised value of your house.
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Expert Reviewer--//wikihow.com/Special:ArticleReviewers?name=michaelr.lewismichaelr.lewis ---- Michael R. Lewis
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-------------------------References---------------------
---portal.hud.gov/hudportal/documents/huddoc?id=affordable-housing.pdf
---files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf
---consumerfinance.gov/askcfpb/105/what-is-a-second-mortgage-loan-or-junior-lien.html
---consumerfinance.gov/askcfpb/107/my-lender-offered-me-a-home-equity-line-of-credit-heloc-what-is-a-heloc.html
---consumer.ftc.gov/articles/0227-home-equity-loans-and-credit-lines
---myfico.com/Fico-Credit-Score-Range-Estimator/
---consumer.ftc.gov/articles/0227-home-equity-loans-and-credit-lines
---consumerfinance.gov/askcfpb/1949/for-an-adjustable-rate-mortgage-arm-what-are-the-index-and-margin-and-how-do-they-work.html
---bankrate.com/finance/mortgages/arm-vs-fixed-rate-mortgage-1.aspx
Mortgage VS HELOC: Can a Home Equity Line of Credit save interest?
Comparing a Home Equity Line of Credit to a Mortgage as a strategy to pay down debt while utilizing the simple interest of a HELOC compared to the compounding interest of a mortgage.
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???? Purchase Custom Spreadsheets:
Does it make sense to transfer a sum of money from the HELOC to the mortgage as lump sum payment and how much does it save over time? There is a lot of speculation on this topic but today I show you how I broke down the numbers to actually determine if the strategy will save money over the long term. Comparing simple interest to compound interest is a complex strategy and is not easily determined. This spreadsheet helps estimate the potential cost reward benefit of making extra payments to reduce the interest portion of a mortgage. Many scenarios will benefit from using a HELOC without making extra payments but still saving money over time.
To use the chart simply enter the mortgage and HELOC information and the amount of the transfer. The payments are calculated automatically and we can now can see how much interest will be paid on the mortgage from now until the balance reaches zero.
The spreadsheet has 2 sheets:
Quick Calculator - Compares equal payments to either a mortgage only or to combined debt mortgage/HELOC scenario to determine which one would out perform in terms of interest savings.
Custom - Daily tracking spreadsheet that calculates interest savings utilizing a HELOC as a bank account to help keep the debt as low as possible while still continuing to make mortgage payments.
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Reverse Mortgage vs Home Equity Loan
'Reverse Mortgage USA' is one of the top 10 Reverse Mortgage companies in the country -- an A+ member with the BBB. This particular video deals with the advantages and disadvantages of a Reverse Mortgage vs a Home Equity Loan. For more detailed information and Videos by Topic visit RmEducator.com.
Can You Use Your Equity To Buy Another House?
After a few years of living in your current home, you might be interested in using that equity you’ve built up to buy an additional property.
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If so, great plan! Using equity in your home is one of the most common ways to transfer wealth that you’ve built in an asset and transfer it to another asset.
You’re probably facing two scenarios, either you’re:
(1) Using your equity to buy another home you’ll live in, or
(2) Using your equity to buy an investment property
In option 1, you’re using equity in your home to transition to another home you’re going to live in. Using equity this way is very common for a “move-up” purchase. A move-up purchase is where you take your equity and use it as a down payment to afford a larger home.
It’s almost like you’re climbing the ladder of home size with the equity you’ve gained over time.
In option 2, you’re using the equity in your home to put money down (or purchase in cash) on an investment property. Maybe you’re planning on flipping this property or renting it long term. Either way, this is a great option to make your money work even harder for you.
The equity in your home gains appreciation as your house appreciates, but in an investment, it appreciates AND gains cashflow through tenants.
So, how can you pull equity out of your home? First, you need to make sure you have enough equity to begin with. Most lenders will only allow you to have a max Combined Loan To Value (CLTV) of 80% - 90%, this depends on the program and lender.
Here’s how to find this out:
(Value Of Home) * (max CLTV allowed by lender) - (Current Mortgage Balance)
Here’s an example: let’s say you own a $300,000 house and you still owe $150,000 on it with a first mortgage. So, we would take $300,000 * 80%. That equals $240,000 as the max CLTV we can have. Then we subtract our Current Mortgage Balance from the CLTV. So, $240,000 - $150,000. That leaves us with ~ $90,000 we can pull out in equity.
Here are 3 ways you can pull equity out of your home:
(1) Selling your home first - this is the most simple, but requires you to either get pre-qualified with two mortgages (not easy to do) or risk selling your home without a solid offer on another home.
(2) Home Equity Line Of Credit - a HELOC is a line of credit that draws against your home’s equity. It may be interest only, but could have a variable rate. This is good for short term usage.
(3) Cash-Out Refinance - instead of a line of credit, you’ll receive a lump sum of cash for you to use and you’ll refinance your first mortgage into a fixed rate.
Using your home’s equity to acquire more real estate is a great option. Using built-up equity in this way will help you put your money to work and leverage it to gain additional income or a home that might appreciate more (especially if you’re moving to a good school district or desirable neighborhood).
Hey, my name is Kyle and I'm a Mortgage Advisor serving Tennessee, Florida, and Ohio. My goal is to help you get a crystal-clear home loan that helps you win the house you love. If you're ready to create your home-buying plan, you can reach me through any of the ways below:
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Borrowing 101: What is a Home Equity Loan? Easy Peasy Finance for Kids and Beginners
This video answers the basic question What is a Home Equity Loan in a simple, kid-friendly way.
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The video addresses the topics below:
- What is Home Equity Loan or a Second Mortgage
- How does a Home Equity Loan work
- Is the interest rate for a Home Equity Loan fixed or floating
- What are the benefits of a Home Equity Loan
- Are there any disadvantages of taking a Home Equity Loan
- Is a Home Equity Loan the only way to convert your home equity into cash
Hope you like the video and stick around for more finance fun! And please let us know your thoughts (or a suggestion for a video) by leaving a comment!
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Will a Second Mortgage Foreclose?
Eric Olsen, Executive Director of HELPS, discussing whether spouses are required to join HELPS together.
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Which Is Better, A Mortgage Or HELOC?
Lynn is retired and lives comfortably on her pension and social security. She doesn't have a mortgage, but she is paying off her home equity line of credit, which has a variable interest rate. Lynn is worried about rising interest rates and wants to know if she should take out a mortgage instead.
Original airdate: January 28, 2018 - Hour 1, Call 3.
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Home Equity Loans & Second Mortgages | MortgageLoanOptions
4 options for low-equity homeowners - Twenty-percent home equity is required to finance or refinance a home without paying private mortgage insurance, and if you're selling, that equity position helps deflect the costs associated with selling your home.
If you don't need to sell or refinance right away, just sit tight because rising home values in most markets will quickly add to your home equity
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Second Mortgage and Home Equity Loan - The Truth About Second
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The question many home owners-to-be are asking is, what are second mortgages
Well, the answer to that would be that a second mortgage is an additional loan that is taken out on one's property
Due to the fact that the first mortgage you took out has to be paid off first, most lenders think that second mortgages are considerably riskier and should be avoided if possible
Because of this, second mortgages are normally charged at higher interest rates as well as higher points for the transaction
Many people think that second mortgages are something like refinancing initiatives, but they are in fact nothing alike
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A home equity loan is simply where you're taking a second mortgage against your house. So, I know that might sound a little confusing, but let me give you an example.
Let's say my house is worth $300,000, and I have a mortgage on it, and I owe $200,000 on that mortgage. So, that means there's $100,000 of equity there in that property. And one of the challenges, sometime, is you pay your mortgage down, you might want to use that equity or some of that value, for other financial goals you're looking to achieve. So, how do you do that?
The way you do that, is by taking out a home equity loan against the property. And most home equity loans might be a 10 or 20 year loan, and you're borrowing the money. And typically you're gonna pay a little higher interest rate than you would on your regular mortgage, because, technically, if you don't make your payments, the bank that holds the first mortgage has the first right to your collateral. And the lender for the second mortgage, or the home equity loan, would be next in line. So because of that, there's a little bit more risk, and you'll often be assessed a little bit more interest, because of that risk.
Now, there are two main types of home equity loans. There's a set loan, a home equity loan where I borrow a certain amount. Let's say, I borrow $20,000. I pay interest on it, and every month I make my monthly payment. So, I know exactly when I'll be done, and I know exactly what my monthly payment will be. That's known in the industry as a home equity loan.
Another type of home equity, is what's called a home equity line of credit. This is where you have access to money, but you're only gonna pay interest, if you actually use it. So, it works very similar to a credit card where, if I'm not using the money, I'm typically not paying interest. But once I use it, then there's a balance, and a monthly payment associated with it.
So, really important, a lot of times people take credit card debt, or other types of debt, and they want to consolidate it onto a home equity loan. And the reason they want to do that is, number one, to simplify their financial life. Number two, home equity loans usually have a lower interest rate, than credit cards, for example. And number three, sometimes the interest on a home equity loan is tax deductible. So, those are all good benefits.
But if you do this, be aware that once you do that, you're home is now at risk. In other words, if I can't make my credit card payments, the lender can't come take my house. But if I can't make my home equity loan payments, my house now is at risk. So, that's a big difference.
Number two, most home equity loans take a lot of time. They're 10, 20 year loans. And, like we were talking about, if you stretch out debt, often times you may pay more over the long term, even though your monthly payment may go down.
And lastly, when consolidating debt onto a home equity loan, be aware that you're not moving debt around versus paying it off. Because I see a lot of people, they move credit card debt to their home equity loan, and then in a few years, what happens? The credit card debt starts coming back, and they owe money on the home equity. So, they have more debt. They're addressing some of the symptoms, and not the cause.
So, home equity loans can be a great way to give you access to money and equity that's tied up in your property. But just make sure you don't fall into any of those problem areas, because I see that happen a lot. And people underestimate the risk that they incur.