Homeownership is a goal for many individuals and families, and we must do all we can to increase lending in underserved communities. As we move out of the pandemic into the recovery stage, financial institutions and not-for-profit organizations have many resources to help people determine if homeownership is right for them, obtain a loan to fit their budget, and make an informed decision.
A recent report from the National Association of Realtors showed that mortgaged homeowners amassed over $2.95 trillion in equity — putting an average of $51, 470 in borrowers’ pockets — on an annual basis in 2021’s second quarter, according to CoreLogic.
Median home prices are at a record high in New Hampshire – pushed by high demand, scarce inventory and low interest rates. The median sales price reached a new peak in 2021 of $335, 000, a 14 percent increase from the prior year.
How To Build Equity In A Review
With gains in home equity reaching historic levels, homeowners are in a position to leverage their equity to fund important life goals efficiently and confidently as needed but should do so in a way that is financially responsible.
One option is to leverage a home equity line of credit (HELOC), which is a line of credit that uses your home as collateral. The amount you can borrow is based on the value of your home minus any mortgage(s) you may have. As you pay off your mortgage and the value of your home goes up, your home gains equity, which you can then leverage via a HELOC to renovate your home, consolidate debt, support family, fund education or purchase a vehicle.
A HELOC often has a lower interest rate than other financing options, so it can be a big advantage for homeowners. The rate is variable and adjusts with the prime rate. Potential borrowers should take advantage of low fixed interest rates, and shop around for lenders that provide an easy digital experience, fast access to funds and personalized expert advice.
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Customers interested in any financial product should be looking to partner with their bank on smart financing options to tackle short- or long-term expenses. They should also find a lender who will help them determine the path forward to pay down their HELOC and minimize risk, in a manageable and cost-effective way that’s tailored to improve their credit score and open up future financing opportunities.
For instance, Citizens recently rolled out the GoalBuilder Home Equity Line of Credit, which gives customers financial flexibility to maintain savings, while paying for what’s important today.
Unfortunately, we can’t predict the future. But, we can plan for it. A HELOC can provide you the financial flexibility for whatever comes at you, good or bad. No matter the situation, you’ll be prepared to take advantage of amazing opportunities or protect yourself from the stress that life often throws at us.
Home Equity Lines Of Credit (heloc) Through Prosper
Lisa Giordano is community development manager for Citizens, which is working with NeighborWorks Southern NH’s HOMETeam program, which provides potential homebuyers with financial advice to help them realize their dream of homeownership.It has been a while since my last mortgage match-up, so without further ado, let’s discuss a new one: “Cash out vs. HELOC vs. home equity loan.”
Yes, this is a three-way battle, unlike the typical two-way duels found in my ongoing series. Let’s discuss these options with the help of a real-life story involving a buddy of mine.
A friend recently told me he was refinancing his first mortgage and taking cash out to complete some minor renovations. I asked how much cash he was getting and he said something like $30, 000.
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Here in Los Angeles, $30, 000 isn’t what I’d call a large amount of cash out. It might be in other parts of the country, or it may not.
Anyway, I asked him if he had considered a HELOC or home equity loan as well. He said he hadn’t, and that his loan officer recommended refinancing his first mortgage and pulling out cash.
For the record, a loan officer will probably always point you towards the cash out refinance (if it makes sense to do so, hopefully).
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Why? Because it works out to a larger commission since it’s based on the full loan amount. We’re talking $530, 000 vs. $30, 000.
Now the reason I bring up the amount of cash out is the fact that it’s not a lot of money to tap while refinancing a near jumbo mortgage.
My buddy could just as well have gone to a bank and asked for a line of credit for $30, 000, or even applied online for a home equity loan of a similar amount.
Home Equity Loans
The upside to either of these alternatives is that there aren’t many closing costs associated (if any), and you don’t disrupt your first mortgage.
Conversely, a cash out refinance has the typical closing costs found on any other first mortgage, including things like lender fees, origination fee, appraisal, title and escrow, etc.
In other words, the cash out refi can cost several thousand dollars, whereas the home equity line/loan options may only come with a flat fee of a few hundred bucks, or even zero closing costs.
Home Equity Loans And Lines Of Credit > Northway Bank
You may also be able to avoid an appraisal if you keep the LTV at/below 80% and the loan amount below some key threshold.
Another advantage to a HELOC or HEL is that you don’t disrupt your first mortgage, which may already have a nice low fixed rate.
It may also be close to paid off, with most payments going toward principal. In that case, you may not want to mess with it late in the game.
Pratt's State Regulation Of 2nd Mortgages & Home Equity Loans
Adding cash out to a first mortgage could also potentially raise the LTV to a point where mortgage insurance would be required; clearly that would be no bueno.
Adding a second mortgage via a HELOC or HEL allows you to tap your equity without touching your first mortgage or raising the LTV (just the CLTV).
Now this potential pro may not actually be an advantage if the mortgage rate on your first mortgage is unfavorable, or simply can be improved via a refinance.
Home Loan Advisor
It turned out that my pal had a 30-year fixed rate somewhere in the 5% range, and was able to get it down under the 4% realm with his cash out refinance, a win-win.
The mortgage was also relatively new, so most payments still went toward interest and resetting the clock wasn’t really an issue. For him, it was a no-brainer to just go ahead and refinance his first mortgage.
When everything was said and done, his monthly payment actually dropped because his new interest rate was that much lower, despite the larger loan amount tied to the cash out.
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Keep in mind that it could go the other way. If you take a lot of cash out on your first mortgage, there’s a chance you could raise the LTV to a point where your interest rate goes up.
For the sake of comparison, let’s assume he had a super low rate of 3.25% on a 30-year fixed. He wouldn’t be able to match that rate, let alone beat it.
In this case, he’d maybe be better off going with a HELOC or HEL instead to keep the low rate on his first mortgage intact.
Fixed Rate Home Equity Loan
That relatively low loan amount ($30k) also means it can be paid back fairly quickly, as opposed to say a $100, 000 HELOC or HEL, even if the interest rate is a bit higher.
The downside to a HELOC is that the rate is variable, tied to the prime rate, which was recently raised for the first time in several years and faces future increases as the economy improves and inflation is contained.
Fortunately, the low loan amount means he can pay it off quickly if rates really jump, though chances are they’ll slowly inch up .25% every few months (but who knows with the Fed).
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Additionally, HELOCs use the average daily balance to calculate interest, so any payments made during a given month will make an immediate impact.
This differs from traditional mortgages that are calculated monthly, meaning paying early in the month will do nothing to reduce interest owed.
A HELOC also gives you the option to make interest-only payments, and borrow only what you need on the line you apply for.
Home Equity Loan Rates
This provides extra flexibility over simply taking out a loan via the cash out refi or HEL, which requires the full lump sum to be borrowed at the outset.
However, if he chose the home equity loan instead, he could lock-in a fixed rate and pay back the loan faster and with less interest.
The HEL option gives him the certainty of a fixed interest rate, a relatively low rate, and options to pay it back very quickly, with terms as short as 60 months.
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For someone who needs money, but doesn’t want to pay a lot of interest (and can pay it back pretty quickly), a HEL could be a good, low-cost choice if they’re happy with their first mortgage.
Every situation is different, but hopefully this story illustrated some of the pros and cons of each option. Here is a list of the potential advantages and disadvantages of each for the sake of
