Financial situations change. From unexpected expenses to changes in employment, it can be scary to find yourself facing mounting bills without a means of paying them. If you’re a homeowner, you may be sitting on top of a temporary solution—literally. Borrowing against your home’s equity can get you out of a bind, but it is not without consequences. Before you commit to refinancing your home, consider these pros and cons.
Pro: Equity for Large Purchases or Bills
Your home’s equity is the value of your home in the current market versus how much you still owe on your mortgage. If you’ve owned your home for ten years or more, it may have accrued quite a bit of equity in that time from which you can borrow. An equity loan is essentially a second mortgage taken out against your home that will give you the lump sum of money you need now to be paid back over a five to fifteen-year period. This can help you settle credit card debt, pay medical bills, pay off your car or purchase a new one.
If you’ve made any renovations to your home since taking out your initial mortgage, this may also increase your home’s value and the amount available to you. An improved credit score can also help you secure an equity loan.
Con: Hidden Costs, Fees, and Penalties
Before you jump into refinancing your home and taking out an equity loan, review your mortgage paperwork carefully. Home loans in Plantation may include clauses detailing fees associated with refinancing including upfront costs and penalties for failure to adhere to payment agreement. You need to understand these stipulations before approaching a mortgage lender in Plantation. It may end up being more costly than it’s worth, otherwise.
Pro: Lower Mortgage Interest Rates
If interest rates are currently lower than they were when signed your home mortgage in Plantation, refinancing may be the right move. You may be able to lower your own interest rates, saving thousands over the term of your mortgage. Additionally, you should consider opting for a shorter-term loan if you can manage one. Paying off what you own in a shorter time period means you pay less in interest overall.
Ace Mortgage is a leader in home loans in Plantation and across South Florida! Contact us today for a free consultation to learn more about your options.
Con: Refinancing is NOT a Permanent Solution to Financial Woes
If you’re considering refinancing your home loan to take out an equity loan, it’s important to understand the terms of your agreement. While it can help to solve financial issues in the moment, equity loans are not debt elimination. You are still responsible for repaying the total loan amount plus any fees or interest accrued during repayment. Be careful not to create a larger problem for yourself if you are not in a financial space to be able to make regular payments toward your loan.
It’s also not guaranteed you will be able to get a loan for the full amount of money you need. Just as your home can increase in value over time with proper upkeep and home improvement projects, it can also depreciate in value. Be sure to get an assessment for your home equity and consider all your debt resolution options.
Still want to know more about refinancing your home? Contact Ace Mortgage today for a personalized assessment!