The home market is extremely competitive right now with historically low mortgage interest rates. This is an ideal time to consider a cash-out-refinance if you are considering remodeling your current home, paying down debt and/or having extra cash for something else you’d like to do. A home equity loan and home equity line of credit (HELOC) are also possible loan choices when needing cash for home improvement and debt consolidation. Which is right for you?
While you ponder these thoughts, it’s best to make an appointment to visit with your mortgage banker. Your mortgage banker will look at your financial situation and explore your possibilities. He or she will look at the interest rate of your current home mortgage, the interest rate of a new mortgage, and the rates for a home equity loan and line of credit. And most importantly, your mortgage banker will begin to determine the equity you have built in your home. Your mortgage lender will do a complete analysis to help determine which loan program is right for you and your budget. And it’s all free.
In the meantime, let’s look at some questions for you to consider.
How much equity have you built in your home?
Oftentimes the amount of time one lives in their home will determine how much equity has been built in the home. However, with the competitive marketplace we are experiencing today, it’s more about how much your home is worth, its current value, and how much you still owe on your current mortgage. The difference will give you an idea of your equity.
What type of mortgage do you currently have?
There are many types of mortgages today and depending on your lifestyle and financial circumstances, you will want to look at the different mortgage programs available to you today. For example, if you are in an adjustable rate mortgage, you may want to refinance to a lower fixed rate mortgage. Also, if you are in a 30 year fixed rate mortgage, you may want to refinance to a 15 year fixed rate. Oftentimes if the future looks uncertain, you can consider switching from a 15 year fixed to a 30 year fixed to give yourself some breathing room with monthly payments. Again, your mortgage banker will run through all these scenarios with you.
Also this is the time when your mortgage banker can help you determine if you want a fixed rate mortgage with cash out or use a home equity loan or line of credit for your needs.
What will my payments be with a new mortgage vs a second mortgage?
Many borrowers find they make decisions based on what their monthly payments will be with a new loan to make sure it fits into their current budget. When comparing the payments for either a refinance with cash out or a home equity loan, remember how these loans work. When you refinance with cash out, it will replace your current mortgage with a new term, interest rate and monthly payment. You will have one loan with one monthly payment.
When you use a home equity loan or line of credit, you are actually taking a second mortgage on your home which means you will have the monthly payment on your first mortgage and another monthly payment for your home equity loan or line of credit. Two loans with their own terms, interest rates and two monthly payments.
What is your current interest rate?
Again, because interest rates are historically low, it’s a perfect time to review your mortgage options. Depending on your current rate, it might be to your advantage to refinance to a lower rate with or without cash out. A home equity loan and line of credit will also have competitive rates today, so you’ll want to really explore your reasons for wanting extra cash.
What do I want to accomplish with extra cash?
Most people use a refinance with cash out or a home equity loan to remodel, make home repairs or pay down debt. When making a home repair like a new roof for example, you will need a set amount of money upfront. In this case, it might be more advantageous to do a cash out refinance or a home equity loan. Both will give you the predetermined amount of cash up front. However, if you are remodeling, you might need money extended to your contractors in increments as the work is completed. A home equity line of credit (HELOC) might be more ideal for you in this situation. And depending on the amount of debt you want to consolidate, and the current interest rates of these programs, you’ll want to explore your rates, payments and how long it will take to pay back the costs to consolidate debt. Typically, if you are consolidating credit card debt your refinance with cash out will have a lower interest rate than most credit card companies. This definitely warrants a discussion with your mortgage lender.
What are the costs to refinance with cash out or use a HELOC?
Each of these programs will come with their own set of costs. In most cases, you can plan to pay for a home appraisal and incur closing fees with both programs. Typically you will find that the costs to refinance your current mortgage will be higher than to take out a second mortgage – a home equity loan or line of credit.
It will truly come down to how much you need to borrow, for how long and at what interest rate. These are all costs and benefits your mortgage banker at Chelsea State Bank will discuss with you so you can make the most informed decision when it comes time to decide.
Chelsea State Bank offers cash out refinance loans as well as home equity loans and HELOCs – whether your first mortgage is with the CSB or not. The mortgage bankers at CSB are experienced and know the community where you live. They can guide you to the best loan program for your lifestyle and budget.
Simply call us at 734.475.4210 or visit us at https://info.chelseastate.bank/refinance to begin.
Chelsea State Bank is here to help you learn more about the loans we offer to help make life a little easier while taking advantage of this competitive marketplace, today!
Loans are subject to credit review and approval.
