equity loan guide

8/14/2019 Equity Loan Guide

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Everything you need to knowabout an equity loan

or using your home or cash.

Consider tapping the

home equity saety net that’s right under your roo —

or a line o credit or xed

rate mortgage that can

equal ast, fexible extra

cash. Even i you have less-

than-perect credit.

I you’ve been making payments on your home loan, or your

home’s market value (the price you could get or it i you sold

it today) has gone up since you bought it, you probably have

equity in your home that you may be able to use or extra cash

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Home equity is simply the dierence between your home’smarket value and what you still owe on your mortgage(today’s balance). For example, i you owe $80,000 on yourhome, but its market value is $100,000, then you may haveas much as $20,000 in equity.

Calculate your equity here: Fill in the blanks below to determine how much equity

you may have.Your home’s current market value $____________

(Find your home’s estimated value atwww.zillow.com or www.homevaluecentral.com )*

Current mortgage balance – $____________Estimated available equity = $____________

You may be able to access your equity with one o these options:

- A home equity loan (sometimes called a fxed ratesecond mortgage)

- A home equity line o credit (sometimes called aHELOC or short, pronounced “he-lock”)

- A home loan refnance (also called cash-out refnance),where you pay o your existing mortgage with a newmortgage and get cash back.

*Zillow.com and HomeValueCentral.com oer homevalue estimates only and should not be reliedupon or actual loans.

Advantages o using your equity or extra cash:

Consolidate debt using home equityDebt consolidation (paying o your credit cards and otherdebt using the money rom your home equity) is one o themost popular uses o home equity. By using your home’sequity, you can oten get a lower interest rate than creditcards and other types o loans. Another big advantage isthat since you pay o all your other debts, you’ll likely haveewer payments every month.

Other ways to use your home equityThere are no limits on how you can use the extra cash youget rom your home equity. Other than debt consolidation,here are some other popular uses o home equity:

What is home equity? • Lower interest rates than other forms of

borrowing

• Flexible way to have cash available quickly

• Usually a small amount of paperwork needed

• Interest payments are tax deductible in most cases*

• Can be a smart “emergency” account to help payor unexpected expenses

*Consult your tax adviser.

• Home improvement or repairs

• Buying a new or used vehicle

• School tuition and college costs

• Medical bills

• Weddings

• Vacations

• Start a business

• Other large purchases such as a boat or RV

• Investments such as rental property or land

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Home equity loans:also known as second mortgages

I you’ve built equity in your home (meaning your home isnow worth more than you owe on your home loan), then itmay be simple to turn that equity into cash.

One option to accessing your equity is through a homeequity loan, also called a second mortgage. Other ways area home equity line o credit and a renance o your existinghome loan.

Why choose an equity home loan?I you’re interested in using your home’s equity to pay o a large amount o credit card and other debt, or to pay ora large, planned purchase — but you don’t want to worryabout an interest rate or payment that might change — axed rate second home equity loan may be a good option

or you.

Unlike home equity lines o credit, which give you a pool o money to draw rom over time as you need it, equity loansgive you the money all at once. That’s why home equityloans can be perect or a one-time debt consolidation(paying o your other debt with the equity cash) orbig purchases like a new or used car or homeimprovement plans.

Why an equity loan can be a good thing:

I you’re trying to decide between an equity home loanor line o credit, a good resource is theFederal Reserve Board Web site.

A 2nd mortgage — using the available

equity in your home to put cash in

your pocket — can be a great nancial

tool, even i you have less-than-perect credit. But is it right or you?

• Offers an interest rate and a monthly paymentthat will not change

• You’ll know exactly when you’ll pay off the loan ater a certain number o payments

• Usually the interest rate for an equity home loan is lower than credit cards and other typeso loans

• The interest, in most cases, is tax deductible and that will save you money on your tax return*

* Consult your tax adviser.

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http://www.federalreserve.gov/pubs/HomeLine/default.htm#lines






I you have equity in your home, you may be able to open ahome equity line o credit, even i you don’t have any usesor it in mind yet.

Home equity lines o credit (also called HELOCs or short,pronounced “he-locks”) work much like a credit card — youhave an available credit limit, and you are not chargedinterest until you use unds rom your line.

Along with that fexibility comes convenience: A line o credit can usually be accessed by an access card, similar to adebit card, or checks.

Plus, you could choose to use the home equity line o creditor anything you’d like: paying o your other monthly bills,*taking on home repairs or improvement, paying or avacation or wedding.

Why a home equity line o credit can be budget-smart:

- You can borrow money as you need it, up to acredit limit

- Interest rates are usually lower than credit cards and other types o loans

- Unlike credit cards, the interest you pay is tax deductible in most cases**

- As you pay down your balance, it rees up your homeequity line o credit money again

- Interest only starts being added as you use the money. This is different than an equity home loan, where intereststarts being added right away or the whole amount o credit you receive

- During a home equity line o credit “draw period”(typically the rst ve or 10 years), you have the choiceo making a low, interest-only payment

- A home equity line of credit provides an available

emergency und during the draw period

Be aware that depending on the terms o your line, you mayonly be able to borrow a certain percentage o your equity.This percentage is what’s called the loan-to-value ratio orCLTV (amount borrowed ÷ current market value).

Other home equity line o credit eaturesto think about.Ater the rst ve or 10 years o your line o credit, you maynot be able to access your line any longer or more cash, andyou usually have to start making payments that include bothinterest and a part o your balance (called “principal”).That means your payment will likely be higher during the

repayment stage than it was in the draw period.

Also, unlike an equity home loan that has a xed interestrate or the lie o the loan, a home equity line o credit’sminimum payments and interest rates can change.

* Renancing or taking out a home equity loan or line o credit may increase the

total number o monthly payments and/or the total amount paid when compared to

your current situation.

** Consult your tax adviser.

Home equity line o credit means accessing cash as you need it

Let your home equity help you out when cash

fow is low. Get a home equity line o credit with

a low interest rate and simply borrow as you need

it, even i you have less-than-perect credit. It’s

more fexible than an equity home loan — but

there are trade-os.

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I you’re a homeowner interested in an equity home loan,but you haven’t yet built up a large amount o equity,getting extra cash may still be possible with a125-percent loan.

A 125-percent equity home loan is a 2nd mortgage loanthat allows qualied borrowers to borrow up to 25 percentmore than the market value o their home. For example, i your home is worth $100,000, a 125-percent loan wouldallow you to still borrow up to $25,000 or extra cash, eveni you don’t currently have any equity in your home.

Calculate how much you may be able to borrowhere by entering your inormation in theworksheet below:How a 125-percent equity home loan works

The 125-percent equity home loan is usually oered tocertain qualied people — people who may not haveequity in their home yet, but who have good credit scores.Generally, lenders want you to have lived in your home orat least three months beore oering this type o 125-percent equity home loan.

Your credit score will also determine the amount o moneyyou can borrow. The higher your score, the more cashyou’ll qualiy or up to 125-percent o your home’s value.

Your credit score also is taken into account when the bankgures out how low your interest rate will be. You canusually choose between a xed-rate or adjustable-rateequity home loan.

Things to think about beore you apply or a125-percent equity home loanI home prices in your area are not on the rise, and you plan

on selling your home sooner rather than later, you may wantto be cautious when applying or a 125-percent equity loan.In a situation where you might have to sell beore you pay

back your equity loan, and the prices in your neighborhoodare not on an upswing, you might end up owing more oryour home than it’s worth.

Another point: 125-percent equity home loans generally

have higher interest rates than other types o equity loans,because banks consider them riskier than loans based on100-percent equity. Also, with a 125-percent equity loan,the ederal government won’t allow you to deduct theinterest payments rom your taxes, which you can usuallydo with a 100-percent (or less) home equity loan. (Consultyour tax advisor)

Need to tap your home equity or

extra cash but worried you don’t have

enough equity in your home? A 125-

percent equity home loan can help. But

read on to learn the pros and cons.

125% allowed loan-to-value (LTV) is your home’s

current market value $_____________ x 1.25 =

Amount you can borrow $_____________

Why a 125-percent equity home loan may be the second mortgage solution or you

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The concept o a cash out renance loan is simple: yourenance your existing mortgage or more than you currentlyowe (up to the amount o your home’s current value), and getcash back or the dierence. You can then use that cash toconsolidate other debt or or anything else you choose — or

home improvement, a new vehicle or vacation, even medicalor education expenses.

With a cash out renance loan, closing costs (the normalhome loan nancing ees) can oten be rolled into your newmortgage balance, so there’s little or no out-o-pocket costto renance.*

Another plus? I your nances have improved or interestrates have gone down, you could get a lower interest ratethan on your original loan.

Debt consolidation:when cash out refnance can really pay o The number one use o a cash out renance loan is toconsolidate debt by paying o other credit card andhigh-interest debt and rolling it all into your newmortgage amount.

Because home loan interest rates are typically lower thancredit card and personal and auto loan rates, cash outrenancing may save you money on interest charges.**That also means you could pay a lower total amount eachmonth in bills, and you get the convenience o paying onlyone bill instead o many.

In addition, the interest you pay on a home loan is taxdeductible in most cases, so you also save money on yourtax return each year.***

* Borrowers who choose to pay closing costs upront may qualiy or a lower rate.

** Renancing or taking out a home equity loan or line o credit may increase the

total number o monthly payments and/or the total amount paid when compared

to your current situation.

*** Consult your tax adviser.

Cash Out Refnance LoanUsing Your Home Equity to Pay O Debt and Get Extra Cash

Renance your home. Get cash back.

Use your home equity or debt

consolidation (paying o your other

bills) or large expenses. It’s an

alternative to an equity home loan— and it can be a budget-smart

solution, even i you have less-than-

perect credit.

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Current Home Loan

Credit Card #1

Credit Card #2

Retail Card/Store Charge

Total

Renance Loan Amount

Monthly Payment Savings

Annual Payment Savings

Current Balance

$152,000

$10,000

$12,000

$8,000

$182,000

$190,000

New Payment

$1,361

$0

$0

$0

$1,361

$641

$7,692

Current Monthly Payment

$1,102

$300

$360

$240

$2,002

The above cash out re scenario is based on the ollowingassumptions: Sample current loan: 30-year, xed-rate loan,$152,000 loan balance at 7.875%. New loan: $190,000 loanbalance, 3/27 xed-period adjustable rate mortgage, 3 yearpre-pay, 2 points, 7.75% Interest rate, 8.87% APR. Credit

card and store charge payments assume minimumpayment o 3% o balance. ARM rates are subject to

increase ater the xed period o the loan. The loan willthen be ully amortized over the remaining term as anadjustable-rate mortgage that adjusts once a year. Anyrate increases will make monthly payments higher and theestimated annual payment savings lower ater xed period

o the loan. Monthly payments are principal and interestonly, owner occupied, single amily residence.

Take a look at just one example o how a cash out refnance loan could save you money bothmonthly and over the course o a year during the fxed period o the loan!

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Using your home equity or home improvement:

How much will your project cost?

Home equity can be a great source o unds to pay or homeimprovement. Below, we’ve gathered a ew tips to help youuse your equity dollars wisely.

1. Determine what you can aordI you’re using your home’s equity, you’ll need to considerexactly how much equity you have, then how large o a monthly payment you can aord. See page 1 o thisguide or more inormation on how to calculate your

home equity.

2. Unexpected CostsOnce you determine how much you can aord,decrease that amount by 10 to 20 percent. This amountshould be reserved to cover any unexpected costs alongthe way.

3. Start planning a budget, keeping in mind theseimportant acts:Beore you use an equity home loan,

equity line o credit or equity cash

out renance loan to remodel your

home, be sure to calculate your

costs careully.

• Calculating the cost to remodel or repair yourhome can vary by region and season

• Expanding your home’s physical structure is more costly than making an internal homeremodeling change

• Calculating the costs of remodeling requires pricing the ollowing:

___construction materials and labor (unless youdo it yoursel)

___permit fees___decorative enhancements___repairs due to remodeling___cleanup

Your contractor should provide these costs whenthey submit a bid.

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Other budget tips:

•Plan ahead. Go through the design process frstand choose everything you want to include inthe new room(s), rom appliances to lightxtures. This will prevent hasty decisions later.

•Consider product choice. Determine whether you can achieve a similar look with a lessexpensive product.

•Pay attention to how labor-intensive

particular design eatures may be, or example,laying ceramic tile on kitchen countertops.

• Think about staging the work over a period of time to lessen the impact on your pocketbook.



4. Get fnancing.Home equity loans and lines o credit can be two budget-smart ways to nance remodeling projects. In act, homeimprovement is the second most popular use o homeequity loans.

By using your home’s available equity to und remodeling,you may be opting or a low-interest, low-monthlypayment way to achieve your goals. In addition, theinterest rate you pay is usually tax deductible.*

* Consult your tax adviser.

Cost vs. Value (2005 National Averages)Starting to plan a project but not sure i it’s worth the cost?The best return on value in 2005 was typically seen in bath-room additions, siding, and kitchen remodeling or which inmost cases, homeowners can expect on average to recoupover 90% o their investment in resale value.**

**REMODELING Magazine “Cost vs. Value Report”

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Call the fnancial reedom experts at Countrywide

Home Loans today: 1-888-265-3662

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Inc. Countrywide Home Loans, Inc., 4500 Park Granada, Calabasas, CA 91302:Arizona Mortgage Banker License Number BK8805; Licensed by the Department o Corporations under the Caliornia Residential Mortgage Lending Act; Georgia Reg.#5929; Illinois Residential Mortgage Licensee (# 0139) by the Oce o Banks andReal Estate, Mortgage Banking Div ision, 310 South Michigan Avenue, Suite 2130,Chicago, IL 60604, (312) 793-1409; Massachusetts Mortgage Lender License No.ML 1623; Licensed by the New Hampshire Banking Department; New Jersey (818)313-6526, Licensed Mortgage Banker, NJ Department o Banking and Insurance;Licensed Mortgage Banker, NYS Banking Department; Registered with the Penn-sylvania Banking Department; Rhode Island Lender’s License. Countrywide Bank,FSB, 1199 N. Fairax St., Suite 500, Alexandria, VA 22314: Minnesota loans willbe made by Countrywide Bank, FSB through its home loan nancial centers. Thisis not an oer to enter into an interest rate lock-in agreement under Minnesotalaw. Some products may not be available in all states. This is not a commitment tolend. Restrictions apply.

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