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9009 West Loop South, Seventh Floor, Houston Texas
1-866-889-9347 |
CCCS of Lehigh Valley
A Division of Money Management International |
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Regional Headquarters - 3671 Cresent Court East, Whitehall Pennslyvania |
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Second Mortgages and Home Equity Loans Can Put Your Home at Risk |
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In our society, home ownership is part of the American Dream. It’s our little slice of the pie, and for most homeowners, it means having a little more personal freedom than renting.
For the most part, you have the freedom to do with your house anything you like. You can paint it and decorate it any way you like, plant anything you want in the yard, whatever it takes to make the house feel like your home.
However, it’s also important to remember that your house is an investment and a financial asset, and as such, there are certain advantages and pitfalls to look out for.
One of the biggest advantages to owning a home is that, once you have built some equity, you can save money when you take out a loan because the interest you pay is tax-deductible. Home equity is the difference between what the home is worth and what you owe. If your home is valued at $90,000, and you only owe $75,000, your equity is $15,000.
There are two primary ways to borrow against your home, the first of which is to take out a second mortgage. This type of loan is usually for a shorter term of between five and twenty years, and will carry a higher interest rate than the first mortgage.
Many people take out a second mortgage to purchase a car, if they have enough equity, because the interest is generally lower than an automobile loan and, again, the interest paid is tax-deductible, so the cost of financing is much lower.
Remember that terms can vary greatly from lender to lender, so shop around with banks and credit unions to find the best rate. Also, make sure you clearly understand how much your monthly payments are and that they will fit into your budget.
A second way to borrow against your home is to take out a home-equity credit line. If you plan to take this route, it is vitally important that you understand everything about the loan’s terms, because they can change.
For example, the interest rate may actually start out fairly low, but in checking the fine print, you may find that it is variable and can increase. And if the rate goes up, so does your monthly payment. Also, if the loan you are considering has a “discounted interest rate,” find out how long the lower rate is good for and how much it increases down the road. Usually, these discounts only apply for six months.
It’s important to know that home-equity credit lines require some substantial costs up front, which can include application fees, a title search, appraisal, attorney’s fees and points. Some credit lines even have transaction fees that incur every time you borrow money.
Before signing up for this type of loan, make sure the monthly payment covers principal and interest. If you have a balloon note, in which only the interest is paid and the full payment is due at a specified later date, be sure you can make the payment as agreed on, otherwise it may be difficult to borrow money down the road.
Again, the most important thing to consider is how much you really need to borrow the money, and if you can easily handle the monthly payment. Borrowing against your house can be a tremendous advantage if you approach it wisely, and a disaster if you don’t.
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CCCS, A Division of Money Management International
Regional Headquarters - 3671 Cresent Court East, Whitehall Pennslyvania
Corporate Address - 9009 West Loop South, Seventh Floor, Houston, TX 77096
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