Hello all,
I am thinking about applying for a home equity line of credit to make some upgrades and improvements to my home.
If anyone has done this could you please explain how this type of loan works in comparison to a 2nd mortage or a refinance.
I appreciate any information given. Thanks for your time.
V_V
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There is no substantive difference between an equity loand and a second mortgage. Theoretically the amount of a equity loan is backed fully by obtainable equity in the home in case of default, but that's surely been demonstrated to not necessarily be so. Rates may be slightly lower owing to the "secured" nature but that's not foregone conclusion and costs also may or may not be comparable depending on the lender. In today's market where 90% of mortgages are sold by the originating institution there may be little or no advantage in returning to them--in olden days where lenders held the paper it usually had a major influence.
Refinancing is simply replacing an existing mortgage w/ a new one, hopefully w/ better terms than the original owing to lower market interest rates at the time of refinancing vis a vis original, better personal financial situation or somesuch. Origination fees may eat up much of the perceived gain, however, unless one is careful in evaluating the whole picture.
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Correct and one added bit on refinancing. You have to still 'owe enough' for it to be worth their time generally. I did some preliminary checks on this and most do not want to refinance only what I owe (a little under 40K now) for a lower rate than I have. Oh some nibbled at a slight reduction 'for now' but wanted lots of money up front and were 'variable rate' vice my fixed. My rate isnt 'great' (7.50) but it is fixed for life. Variable rate offers came in at 6.75 and 7.00. No thanks. Had I done that, I'd be trapped now with the higher prices I bet.
The major difference is that a second mortgage loan is usually for a fixed amount and a fixed term with a fixed interest rate.
An equity loan on the hand works a lot like a credit card. As long as you can make the payments the term can extend forever and they can milk you for thousands in interest while you never manage to reduce the principal amount.
Either effectively and prudently used can be a valuable tool. Mis-used either can be a bankruptcy waiting to happen.
I suggest you never use either to finance a "lifestyle" and that can apply to unnecessary home improvements.
... Once upon at time, maybe. Now, not so much...altho after the meltdown things are going back to far more conservative practices and when whatever new regulations that are sure to come are enacted undoubtedly it will be far harder for all involved.
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Holt crap! I refinanced less than $25k 2 years ago for 4.25%. I still went with a credit card last year for a"loan" of $28k since I could get that at
3.99% instead of 4.25%. Why are you paying nearly twice that? Mine is fixed also. I'm in upstate NY, with the highest taxes/assessments in the nation, too.
Oh, and no one charges ANYTHING for "fees" anymore. Seriously.
"h" wrote
Probably a matter of timing involved. This is in last 6 months. Possibly didnt find the right folks either?
We did a similar thing this year. Our mortgage was due for renewal, and as we renewed we chose to get some cash to replace all of our windows (17 of them). I think (hope!) this was a sensible decision in our case; while we only bought our home five years ago, our house is our only debt. And I'm hopeful that the windows will help with the oil bill at least a bit this year. Oil here was $1.24 a litre at the end of the heating season last year (although we were locked in at .87). Hate to think of what it will be this year.
Plus, our province has a home energy audit program where you pay a fee for a before and after energy audit. Depending on which of their recommendations you follow up on to improve energy efficiency, you get rebates for various amounts. Windows generally get you $30 per unit from the province, and another $30 from the federal government. $60 a window x 17 windows helps a bit.
We went from the safety of a fixed rate at 4.69% to a variable rate this time around. It's a certain percentage below prime for a certain period, then goes up a bit from that. We pay the same amount each month, but depending on the current rate, pay more or less toward the principal. We've increased our bi-weekly payment too, so hopefully the amount we borrowed will go away sooner rather than later.
KD
I just re-fied with my tiny little local bank where I got the original mortgage 23 years ago. Their rates are MUCH better than the big banks, but they also have much more stringent guidelines and require a credit score of at least 775.
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