For many people, their home is their biggest investment and source of savings. When they need to borrow money for major expenses, or to pay off accumulated debts, they can use their home value to borrow money.
Pay off your credit cards
If you have credit card or other consumer loans, it is often less expensive to consolidate these expensive loans with your mortgage.
Credit card interest rates are usually much higher than mortgage interest rates. And, the interest on your mortgage is tax deductible, while the interest on your credit card is not.
If you have enough home equity, you may be able to pay off other things like car high car notes and save thousands.
Refinance vs. Home Equity Loan
Generally, there are two ways to use your
home equity to borrow money. You can either refinance with a new mortgage that
is larger than your remaining balance (a cash-out refinance) or get a 2nd
Mortgage in the form of either a Home Equity Loan or a Home Equity Line of Credit. The
difference between the two is that a Home Equity Loan has a fixed interest rate,
either as a 15 Year Fixed note or a 15 Year Balloon note. The Home Equity Line
of Credit is an interest only loan that is based on the Prime rate. With a HELOC, you pay interest only on the principal amount borrowed and your minimum payment will re-cast each month when extra progress is made towards the principal amount.
A cash-out refinance is generally a safer long term option, but 2nd Mortgage will allow you to leave your first mortgage alone while being able to access the equity in your home.
