Don't refinance your 1st mortgage
After you have paid a couple of years on your mortgage, you may get an itch to refinance.
You figure that if you can save a little on your monthly mortgage payment, you can save more money and maybe put it towards a retirement fund or something.
Your friends and lender will probably tell you it’s the wisest idea, but you might be better off keeping your 1 st mortgage and taking out a home equity loan for some extra cash.
Rebecca O’Connor’s article, “Home Equity Loans: Cash Out Alternative to 1st Mortgage Refinancing” located on ezinearticles.com, explains the benefits of taking out a home equity loan over refinancing your 1 st mortgage.
As interest rates continue to rise month after month, it is becoming even more apparent that refinance may not be the best option.
“If you bought your home in the last couple of years in a hot market at a great interest rate, you may be wondering about the best way to cash out your equity. Maybe you need to consolidate debt or would like do some home repairs and remodeling. Leaving your 1st mortgage loan at the current low rate makes much more sense than refinancing at a higher rate, but how do you get to your equity? A home equity loan or home equity line of credit can be a great alternative to a refinance of your current loan.”
Home equity loans can allow you to take out up to eighty percent of your available equity in one installment. A basic home equity loan usually has a fixed mortgage rate, meaning that your monthly payments will never change due to outside influences such as rate inflation.
“The payments may be higher than a home equity line of credit at first, especially compared to a line of credit with an interest only payment period, but you can be certain of how much you are paying monthly down the road as well. An adjustable rate mortgage in a market with rising interest rates may be liability for some, but if you are planning on paying back your loan quickly it may be a better option than credit cards. Also some mortgage products allow you to convert your home equity line of credit into a fixed-rate home equity loan at the current rate.”
A home equity line of credit (HELOC) is another viable way to access the equity from your home, but it acts more like a credit card.
“A HELOC is a revolving account that can be utilized as needed during the draw period and paid back in monthly installments or all at once. These loans have a variable interest rate and work as an adjustable rate mortgage.”
But for the most part, a HELOC offers lower interest rates than a credit card because it is a secured loan.
Also, consumers with home-equity loans can enjoy the benefit of deducting interest payments on their federal and state income taxes, whereas credit card interest is not tax deductible.
“‘In effect, the tax deduction lowers the interest rate,’ states Keith Leggett, senior economist for the American Bankers Association. Either of these loans may be a better option than refinancing in today’s market. Be sure to find a lender you can trust and fully discuss all your options.”
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