| Home Equity Loans are a potentially money-saving | | | | the amount of your current mortgage and the newly |
| option for homeowners who want to consolidate debt | | | | appraised value of your home. This ratio will be figured |
| and/or turn some of their bad credit into good credit. | | | | into the loan terms of your second mortgage. |
| The possible tax deductions on home equity loans | | | | FAQ: Is Home Refinancing a Better Option Than A |
| make them potentially useful for debt consolidation, | | | | HEL or HELOC? |
| since other personal and consumer loans typically | | | | A: That depends. If you decide to refinance your |
| have no tax deductions and higher interest rates. A | | | | current mortgage, you may be able to obtain a lower |
| home equity loan can also be used for home | | | | interest rate, which means lower payments, and the |
| improvement purposes, and certain tax advantages | | | | possibility of a cash-out refinance. |
| can apply. | | | | Obtaining an interest-only refinance is also a possibility. |
| According to current home equity statistics from the | | | | However, while an interest-only lowers your payments, |
| U.S. Census, approximately 7.2 million Americans | | | | it can also lower the equity in your home and, says |
| obtained home equity loans in the past year. However, | | | | CFA for bankrate, Don Taylor, “only makes |
| not all loans are right for everyone. It is important to | | | | sense for people who don’t plan on being in the |
| decide which type of home loan is the perfect fit for | | | | mortgage or house for a long time.” |
| you. To be sure that you are making a confident | | | | If you are happy with the interest rate on your current |
| financial decision before you sign on the dotted line, | | | | mortgage, it makes more sense to consider a HEL or |
| read on for answers to frequently asked questions | | | | HELOC, especially since it is possible to refinance your |
| (FAQ) about home equity loans. | | | | first mortgage as well as your second in the future if |
| FAQ: Are Home Equity Loans (HEL) and Home Equity | | | | interest rates do take a dip in your favor. |
| Lines of Credit (HELOC) the same thing? | | | | FAQ: What Is a Subordination Clause and how does it |
| A: No. Although both of these loans are of second | | | | relate to a HEL? |
| mortgages, a HEL and a HELOC have some | | | | Depending on the lender, a subordination clause or |
| important differences. With a HEL, you receive a lump | | | | agreement most often means that before you can get |
| sum of money, while a HELOC works more like a line | | | | a second mortgage, the first mortgage company must |
| of credit. | | | | agree to allow the second mortgage to be placed in |
| The interest rate on these loans also works differently. | | | | first lien position. The new loan then has the priority in |
| Home equity loans generally have a fixed interest rate, | | | | case of a foreclosure. |
| but according to bankrate “almost always carry | | | | This is especially important down the road if you pay |
| fees and closing costs, which many lenders do not | | | | off your first mortgage, because the lender in charge |
| generally charge for credit lines.” While home | | | | of your second mortgage can then write a new first |
| equity lines of credit may be free of some of these | | | | mortgage and place that in first lien position, which will |
| costly up-front fees, keep in mind that they are also | | | | help protect your interest rate, since the rate for |
| variable rate loans, which means that the interest rate | | | | second mortgages is higher. |
| can change over time, according to the prime interest | | | | Terms of subordination clauses can vary by lender, so |
| rate set by the Federal Reserve. | | | | it is important to have a discussion with yours before |
| When choosing between these loan types, ask | | | | entering into any agreement. |
| yourself whether receiving your loan all at once or | | | | Being an informed consumer is the first step toward |
| having access to a line of credit works better for you. | | | | making sure you get the right loan for you. Be sure to |
| FAQ: What Is a Loan-To-Value Ratio? | | | | talk to your lender and weigh your options carefully |
| A: The loan-to-value-ratio is the difference between | | | | before making a final decision. |