Build Equity by Refinancing Your Mortgage
April 1, 2009 by Debt Equity Financing
Filed under About Equity
By refinancing your home loan you can increase the equity on your home, thus letting you obtain in the future a home equity loan or line of credit or eventually, once the first mortgage is canceled, another mortgage in order to make home improvements, buy another property or for any other purpose you may think of.
Equity Explained
Equity is basically the difference between your property’s value and the remaining debt on your mortgage. For example: If your property is worth $100.000 and your home loan debt, though originally $100.000, is now around $60.000 due to the continued payments, then, the equity on your home is $40.000.
The equity on your home let’s you obtain cheap finance in large amounts because loans and lines of credit based on equity are secured by the same property as your mortgage. In the above example, the proprietor could easily get approved for a home equity loan or home equity line of credit for $40.000 with an interest rate only 1 or 2 points over his mortgage rate.
Refinancing Can Help You Build Equity
Though refinancing is usually used for reducing the burden that mortgage installments sometimes imply or for consolidating debt with a cash out refinance loan, with the proper refinance mortgage loan you can easily start increasing your home equity at a considerably faster rate.
Equity builds either when the property’s value increases for whatever reason or when the mortgage debt’s principal is reduced. The current rate at which the mortgage’s principal is reduced depends on the interest rate and the loan length or to make matters easier, the equity building pace depends on the composition of the mortgage installments.
If the mortgage installments have a higher proportion of interests and a lower proportion of principal, each time you pay your mortgage installments you are only reducing the debt’s principal slightly and thus, your home equity will increase just a bit.
However, if you could refinance your home loan in such a way that a higher amount would go to reducing your debt’s principal, then, your equity would build much faster and you could increase your ability to get finance at lower rates and with higher amounts in a matter of months.
Refinancing To A Shorter Term
It is obviously best if you can get a lower interest rate when refinancing, however, the key to reducing the principal and building equity faster is to shorten the loan term. You’ll of course have to pay higher monthly installments but those installments will have a considerably higher proportion of money that will go to cancelling your mortgage debt’s principal and so, your goal of hastening the equity building rate will be accomplished.
Moreover, since refinancing to a shorter term will undoubtedly reduce the interest rate you pay for your mortgage, by refinancing for a shorter term you will not only build equity faster but you will also save thousands of dollars on interests over the whole life of the loan.
Thanks to Devora Witts for contributing this article to our Equity blog:
Equity Explained
Equity is basically the difference between your property’s value and the remaining debt on your mortgage. For example: If your property is worth $100.000 and your home loan debt, though originally $100.000, is now around $60.000 due to the continued payments, then, the equity on your home is $40.000.
The equity on your home let’s you obtain cheap finance in large amounts because loans and lines of credit based on equity are secured by the same property as your mortgage. In the above example, the proprietor could easily get approved for a home equity loan or home equity line of credit for $40.000 with an interest rate only 1 or 2 points over his mortgage rate.
Refinancing Can Help You Build Equity
Though refinancing is usually used for reducing the burden that mortgage installments sometimes imply or for consolidating debt with a cash out refinance loan, with the proper refinance mortgage loan you can easily start increasing your home equity at a considerably faster rate.
Equity builds either when the property’s value increases for whatever reason or when the mortgage debt’s principal is reduced. The current rate at which the mortgage’s principal is reduced depends on the interest rate and the loan length or to make matters easier, the equity building pace depends on the composition of the mortgage installments.
If the mortgage installments have a higher proportion of interests and a lower proportion of principal, each time you pay your mortgage installments you are only reducing the debt’s principal slightly and thus, your home equity will increase just a bit.
However, if you could refinance your home loan in such a way that a higher amount would go to reducing your debt’s principal, then, your equity would build much faster and you could increase your ability to get finance at lower rates and with higher amounts in a matter of months.
Refinancing To A Shorter Term
It is obviously best if you can get a lower interest rate when refinancing, however, the key to reducing the principal and building equity faster is to shorten the loan term. You’ll of course have to pay higher monthly installments but those installments will have a considerably higher proportion of money that will go to cancelling your mortgage debt’s principal and so, your goal of hastening the equity building rate will be accomplished.
Moreover, since refinancing to a shorter term will undoubtedly reduce the interest rate you pay for your mortgage, by refinancing for a shorter term you will not only build equity faster but you will also save thousands of dollars on interests over the whole life of the loan.
Thanks to Devora Witts for contributing this article to our Equity blog:
Devora Witts is a certified loan consultant with several years of experience in the credit area who instructs people regarding credit recovery and approval for personal loans, home loans, consolidation loans, car loans, student loans, unsecured loans and many other types of loans. If you want to understand Home Equity Loans and Home Improvement Loans thoroughly you can visit her site http://www.badcreditloanservices.com
Home Equity Loan - Understanding the Basics of Home Equity Mortgage
February 11, 2009 by Debt Equity Financing
Filed under Home Equity
A discussion of the nature, benefits and operational methods of a home equity loan in simple, easy to understand language is helpful in deciding whether or not such a home equity mortgage should be acquired.
A home equity loan or home equity mortgage is an effective second mortgage on your home, taken out after you have developed some equity in your home. For example, if you purchase a home for $200,000 and you have paid $40,000 over the years against the loan principal and the market value for the home is now $250,000, you now have equity in the home of $90,000. Theoretically, you could apply for a $90,000 loan against the equity, but in practice, most lenders prefer to keep the loan at 80% loan to value or, in this case $187,500. In this example, a loan for $27,500 could be approved.
Definitions
Some of the definitions that you will need to be familiar with include equity, mortgage, interest rate, loan fees, loan type, principal and amortization. If you don’t understand the meaning of these words and others insist on an explanation from the loan broker or lender. You can also do the research yourself so that you are certain you understand the difference between an ARM and a fixed rate loan and why you should choose one or the other, depending upon your circumstances. There are some very good primer level books and classes on almost any subject you can name out on the internet including that of a home equity loan.
Terms
In the case of a home equity mortgage, the word ‘terms’ can mean ‘words’ or it can mean the length of time before the loan is paid off. A loan against the equity of your home often will have a longer term than a personal loan. You may see terms of 15 years, 20 years, even 30 or 40 year terms on the loan. Of course, the longer the term, the more money in interest you will be charged and the larger the percentage of funds you pay are for the privilege of using the money rather than for the money itself.
Rates
The home equity loan rates are also called interest rate or interest. Interest rates are usually structured in one of two ways, although there are other types of loans as well. The fixed rate loans set an interest rate up front and it remains in effect throughout the term of the loan. The adjustable rate mortgage loan has an interest rate that will vary according to a predetermined index or formula. For example the rate may be two point above prime rate, adjustable not more than twice every two years. These requirements will vary depending upon the economy of the time.
Advantages and Disadvantages
A home equity loan or home equity mortgage has the advantage of being a lump sum of money that you can use in any way you see fit–presumably legal. It has the disadvantage of increasing your debt loan and increasing the cost of money sometimes significantly. For example taking out was is actually a second mortgage on your home may raise your debt to value level to the point where private mortgage insurance is mandated by many lenders. This can add thousands of dollars to the repayment amount over the years.
Thanks to Julian Lim for contributing this article to our Equity blog:
A home equity loan or home equity mortgage is an effective second mortgage on your home, taken out after you have developed some equity in your home. For example, if you purchase a home for $200,000 and you have paid $40,000 over the years against the loan principal and the market value for the home is now $250,000, you now have equity in the home of $90,000. Theoretically, you could apply for a $90,000 loan against the equity, but in practice, most lenders prefer to keep the loan at 80% loan to value or, in this case $187,500. In this example, a loan for $27,500 could be approved.
Definitions
Some of the definitions that you will need to be familiar with include equity, mortgage, interest rate, loan fees, loan type, principal and amortization. If you don’t understand the meaning of these words and others insist on an explanation from the loan broker or lender. You can also do the research yourself so that you are certain you understand the difference between an ARM and a fixed rate loan and why you should choose one or the other, depending upon your circumstances. There are some very good primer level books and classes on almost any subject you can name out on the internet including that of a home equity loan.
Terms
In the case of a home equity mortgage, the word ‘terms’ can mean ‘words’ or it can mean the length of time before the loan is paid off. A loan against the equity of your home often will have a longer term than a personal loan. You may see terms of 15 years, 20 years, even 30 or 40 year terms on the loan. Of course, the longer the term, the more money in interest you will be charged and the larger the percentage of funds you pay are for the privilege of using the money rather than for the money itself.
Rates
The home equity loan rates are also called interest rate or interest. Interest rates are usually structured in one of two ways, although there are other types of loans as well. The fixed rate loans set an interest rate up front and it remains in effect throughout the term of the loan. The adjustable rate mortgage loan has an interest rate that will vary according to a predetermined index or formula. For example the rate may be two point above prime rate, adjustable not more than twice every two years. These requirements will vary depending upon the economy of the time.
Advantages and Disadvantages
A home equity loan or home equity mortgage has the advantage of being a lump sum of money that you can use in any way you see fit–presumably legal. It has the disadvantage of increasing your debt loan and increasing the cost of money sometimes significantly. For example taking out was is actually a second mortgage on your home may raise your debt to value level to the point where private mortgage insurance is mandated by many lenders. This can add thousands of dollars to the repayment amount over the years.
Thanks to Julian Lim for contributing this article to our Equity blog:
If you are looking for information about Home Equity Loan, do not hesitate to visit the link at Home Equity Mortgage. Over here, you can find tips, hints, solid information and links to helpful partners.
