Equity mortgage loans are very popular, for a range of reasons. For instance, someone may have a lot of equity in their home, and wants to use this instead of retirement funds to start a new business or to invest in one. Taking out an equity mortgage loan could be perfect then, because their financial lifestyle won’t need to change, yet they suddenly have a great amount of money to play with. Of course, there are significant disadvantages to these types of loans and it is very important that you speak to a financial expert like Stephen Buzzi before agreeing to one, but it may be the perfect solution for you.
Things to Think about Before Signing up for an Equity Mortgage
There are a couple of important considerations you should make before you decide that this type of mortgage is for you. Because they hold the promise of a nice sum of money in your hands, it can be all too easy to have your judgment clouded. Hence, think about the following things and speak to an expert like Steve Buzzi before agreeing to anything:
- Understand that you will usually have a fixed interest rate on your equity loan, and this might be a higher rate than that on a regular mortgage.
- There are situations in which taking out an equity loan means that you refinance something that has already been financed. If your first mortgage is still outstanding, in other words, then you may want to consider a different solution.
- Should there be a drop in house prices, then you may find yourself in negative equity, meaning you no longer meet the security requirements as set by your bank. This means that, in future, you will struggle significantly to get any other financial product.
- There are many different lenders out there, each with different interest rates. Shop around.
- Think about whether you want to stay in your home. If you intend to sell quite soon, then an equity loan is a waste of time and money.
- Check out your credit rating, as this will influence your interest rate. Make sure your rating is as good as it can be.
- Be aware of exactly how much you will have to pay each month and factor in any closing costs.
- Work out whether your monthly payments can be reduced through an equity mortgage, or at least the overall term of your finance.
- See whether you will ever be able to make your loan shorter or longer without incurring penalties.
- Make sure you know exactly how much cash you can receive from the equity loan, and whether there are limits on how much you can withdraw each time.
- Check whether the interest rate is fixed or adjustable, and whether you can switch at any point.
- Find out whether options other than home equity loans are available and what their pros and cons are.
- Know what your closing costs will be and whether those are justifiable.
- Think carefully about your reasons for refinancing.