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When is the right time for a home equity loan?
Posted on February 26th, 2010 3 comments
Kae B asked:
I am interested in doing some updates to my home totaling about $50K (windows, bath, kitchen and small interior remodel). I haven’t really priced things out so this might be an inflated estimate, but I’m sure it’s in the range.Given that I don’t have anything near that in the bank, I wondered about a home equity loan. I’ve owned my home for nearly five years and in that time the value has increased quite a bit. i love my neighborhood and the value is only on the rise.
Anyone know when the time is ripe to take a home equity loan ? How much equity should you have in your house? And will the new loan wrap up into your mortgage or be a completely separate payment?
HARLANRenting & Real Estate Home Equity Loan, House Loan, House Wrap, Love, Mortgage Payment, Neighborhood, Right Time3 responses to “When is the right time for a home equity loan?”
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Instead of taking a loan set up a Home equity line of credit.
It is a line of credit based on the equity you have in your house. As needed you can ask for funds from the line of credit. You then pay a monthly payment based on how much you owe.
It’s kind of like a credit card except the interest is tax deductible. The interest rate may move up and down slightly. It’s a nice emergency back up plan when needed. -
Tall Paul March 2nd, 2010 at 08:32
Kae… Please be VERY CAREFUL!!! The real estate market is very bad right now all over the USA. Home values are way down and there is no guarantee that they will stabilize or that the value of your home will maintain the increase that you say you have. If you take out a loan and the value of your house goes below what you owe, it will be very hard to make it up. A loan is a loan is a loan… you WILL have to pay at some point.
You SHOULD open what’s called a “Home Equity Line of Credit” which can help in case you have emergencies, but it is not wise to use the equity in your house right now because of the market dip. Go ahead and update your house, but do it as you can afford it and pay with money you already saved up.
It would be fun to spend money, but it isn’t free. I just wouldn’t do it right now. Sorry.
Good Luck!
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criolla80 March 5th, 2010 at 13:09
I believe that a home equity line of credit is going to be the better option. Yes, the rate is variable, however, you will only pay against the amount you use (you might need $1,000 here, $10,000 there). Furthermore, the home equity line of credit rates are actually lower than the fixed home equity loan rates.
As far as equity, you shouldn’t want to exceed more than 85% of your homes value (minus the first mortgage you have currently). With the declining market, you are providing yourself a built in cushion in case your home value decreases. Never put your self neck high in mortgage or home equity deals. You need that additional equity in the event of an emergency.
The new loan will be a completely different payment. Your current mortgage will remain as is and a new lien will be placed on title. So you will end up making two payments monthly.
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Susan C February 28th, 2010 at 07:42