There are more and more housing reports telling us that most markets around the country have recovered from the last housing crash of 2007-2009. With values back in the black many homeowners will look to cash out their home’s equity to make improvements to their home, pay off other high interest debt, or send a child to college.
So what is the best way to harvest a portion of your home’s equity?
When looking around for favorable “cash out” refinance loan terms people often discover that banks hit them hard on the interest rate and they end up paying a premium which means the higher loan amount and higher interest rate yields a higher monthly payment. Now you may be saying that it makes sense they would be facing a higher payment because they are borrowing more money. In some cases that is true depending on their current interest rate. You may also be saying that if someone currently has a low interest rate they should leave their existing first mortgage where it is and go get a fixed second mortgage or home equity line for the cash out portion. This is also true depending on the interest rate they currently have and the value of their home.
Often times it’s harder to go get a fixed second mortgage or home equity line behind an existing first mortgage.
We now can offer a “cash out” refinance without the cash out hit. We do this by doing two loans at once. It means a person with one mortgage loan would refinance into two new mortgage loans. The new first mortgage would be to lower the interest rate or shorten the term and the new second-position home equity line would be for the cash out portion. Since no actual cash is taken at closing the banks don’t hit you with the higher cash out interest rate. As soon as the refinance is completed the equity line can be immediately accessed by the homeowner or whenever they choose. The beauty of the home equity line is you only have to pay on the utilized portion of the line which means you don’t have to take the entire amount like you would with a fixed second mortgage. Also, banks only go up to 80% of the value of a home’s value for a “stand alone” home line equity line put in place behind an existing first mortgage but will go up to 90% when it’s tied to a new first mortgage.
The equity line offers the maximum benefit at the lowest acquisition cost and the flexibility to use none, a portion, or all of the equity line without any penalty to the homeowner.
What is the right move for you? Click here to find out by sending me an email.
By David Hughson
Mortgage Planner | Broker