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Use A Mortgage Calculator To Guide
Your Home Equity Loan Decision
By Gerald Mason
The difference between a home loan and
a home equity loan lies mainly in that the home equity loan, also known
as a second or even third mortgage, is issued at a higher interest rate.
This interest rate is lower than you could expect to pay on a credit
card, but it will be still higher than the original interest rate.
Use a home equity mortgage calculator
to see what releasing different percentages of your equity makes to the
payments required. The mortgage calculator then allows you to compare
whether this is the best course of action open to you.
The alternative which may be more
attractive financially is refinancing your home completely. This is
where the mortgage calculator can really work for you. There are a
number of options when refinancing, especially if you have a substantial
amount of equity in the home. By inputting these, one at a time, into a
mortgage calculator you can create a list which will allow you to
clearly see which option benefits you best.
Home equity loans often seem far more
attractive to the home owner than they actually are. This is because the
lender is hoping to seduce you into signing your property into his
hands. Find out all the details and use your mortgage calculator. See if
what you calculates matches what they want you to sign for. Later you
may find that it wasn't such a good idea as your home suddenly becomes
under threat of foreclosure because of some contractual obligation that
you hadn't fully understood.
Only in extreme circumstances should
you even consider a home equity loan that completely strips your
property of any value over mortgage total. Keep your payments affordable
by using the mortgage calculator and always factor in an additional
percent or two on the interest rate.
Refinancing your home is a major step,
but as with a first mortgage this is the only claim on your property. If
you take out a home equity loan instead, then you will have an
additional lender who has a financial stake in your home. If you decide
that you much prefer the terms on the home equity loan, and the mortgage
calculator seems to bring it well within your budget, then make sure you
read the small print carefully.
You need to know what the payments are
for: are they just interest which will leave a large capital balance
payable at a later date, for example? Make sure you can afford these
additional monthly payments.
Tip!
Figuring out whether to invest or to pay down debts is tricky. A
mortgage calculator can show you how much your monthly payments would
change if you replaced several debts with either a home equity loan or
a new mortgage.
Here are a few don'ts that will help
you in the long run: * Don't lie to yourself or your mortgage
calculator. * Don't over-estimate your income under any circumstances;
treat overtime money as "extra" if possible, and not part of your usual
salary. *Don't over-estimate the equity in your home in the mortgage
calculator. This can lead to false hopes which your property appraiser
will quickly dispel.
If you are hoping to use the released
capital to make home improvements, these should add value to your
property. Look into this carefully to find out approximately how much
you'll be increasing your property's value before committing to either
the loan or having the work carried out. Failure to carry out the work
means you are still responsible for the loan, but that you have not
created any new equity.
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