Homes are the largest expense most Americans have to pay and, as a result, they are the most valuable assets most people own.
When homeowners need to invest in a home improvement project, pay off high credit card debt, pay college tuition or finance other large expenses, many turn to the equity in their homes as a source of much needed cash.
One of the ways you can use the investment you have made in your home to your advantage is with a home equity refinance mortgage loan that allows you to tap the equity in your home to obtain one large lump sum. Home equity loans (sometimes abbreviated HEL) are secured against the value of your property and are often called “second mortgages” because they are used in the second lien position. Some important things to note about home equity refinance loans include:
- You may be able to deduct home equity loan interest on your income taxes.
- Since a home equity loan creates a lien against your house, it reduces the actual equity in your home.
- Home equity loans are either fixed-rate or adjustable-rate loans that are repaid over a set period of time.
- The interest rate on a home equity loan—while lower than credit card rates—is usually higher than that on a first mortgage.
While home equity loans can be used wisely to finance large expenses, do your homework to ensure that you are pursuing your home equity refinance mortgage loan in a way that helps—not hinders—your financial goals.
Be Wary of “Reloading”
One of the most dangerous pitfalls is that home equity loans can sometimes be used as a crutch for a homeowner who has fallen behind on bills and borrows against his home equity only to use the extra cash to finance his excessive spending. This results in a homeowner who cycles downward into a never-ending spiral of debt and could lead to him refinancing for a loan that is worth more than his house, thus stripping the equity from his home.
Arm Yourself against Unscrupulous Mortgage Brokers
If you are considering a home equity loan refinance, you should be aware of the many ways that mortgage brokers will trick you into paying junk fees and unnecessary markups that could cost you thousands of dollars in the first years alone. Register for my free Underground Mortgage videos to learn how to beat the mortgage broker at his own game.
Don’t fall victim to paying more for your home equity refinance mortgage loan than it’s worth; arm yourself with insider secrets by registering for your free videos today