Читать книгу Flipping Houses For Dummies - Ralph R. Roberts - Страница 71

Taking out a home equity loan or line of credit unlocks the equity in your home without affecting your current mortgage:

 A home equity loan provides you with a single chunk of money — a one-time payment to you.

 A home equity line of credit enables you to borrow only what you need and pay interest on only what you borrow, making this option attractive for financing renovations. It’s sort of like a credit card, often with a higher credit limit and lower interest rate.

When shopping for a home equity loan or line of credit, look for a lender that doesn’t charge closing costs. Some banks and credit unions even cover the cost of the credit report and appraisal.

Home equity loans and lines of credit often come with adjustable interest rates, which carry additional risks. If the rate jumps significantly, it can make the monthly payments unaffordable and place your home at risk of foreclosure. Consider the worst-case scenario. What’s the highest the rate can go, and how much would the monthly payment be at that rate? If there’s any chance you won’t be able to afford the monthly payments, don’t do the loan.

Taking out a home equity loan or line of credit may be a better financial choice than refinancing your current mortgage in the following situations:

 The interest rate on your first mortgage is low compared to current interest rates. If your current mortgage interest rate is 4.5 percent, refinancing to a mortgage at 8 percent is probably a poor choice. Keeping that mortgage in place and taking out a separate home equity or line of credit loan may be a better choice.

 You’ve been paying on your first mortgage for several years. With every payment you make, you pay more on principal and less on interest, so if you’ve been paying 15 years on a 30-year mortgage, refinancing now may cost you in the long run. Again, a home equity loan or line of credit may be the better option.

 You can quickly flip the property you’re investing in and pay off the home equity loan or line of credit. Assuming that the loan has no prepayment penalty, if you can unlock the equity in your home and then quickly pay back the money, you retain your home’s equity.

Home equity loans and lines of credit are almost always preferable to refinancing an existing mortgage, assuming that you can secure a low-cost, low-interest, fixed-rate loan or line of credit, because they’re reusable. That is, you can pay down the amount you owe on a home equity loan or line of credit and then have it to reuse for another project. When you refinance a mortgage, you replace it with a new mortgage that’s not reusable; after you pay it off, that credit is no longer available.