Credit Tips: Home Refinance for Cash Out or Home Equity Loan?


Visitors: 192

"Sub-prime [bad credit] mortgage lending rose 60% last year, " said SMR vice president George Yacik, "to $516 billion. " One of the most common reasons for this: debt consolidation. With the new, more complicated and expensive bankruptcy laws in effect and credit card companies doubling their minimum monthly payments, people are looking for other ways to get out from under high-interest debts.

Tapping into your home equity is an effective way for you to pay off debt (including credit card debts and high-interest loans) and raise your FICO score. With low credit scores, you will probably be better off getting a home equity loan (second mortgage) rather than refinancing into a bad credit mortgage, especially if you've been paying on the mortgage for five years or more, because the interest rates on the new loan will probably be much higher than your current mortgage rates. While the rates you pay on a bad credit 2nd mortgage will be higher than what you pay on your existing mortgage and higher than what a person with good credit would pay, it will probably still be less than your credit card rates. According to Paul Banister, author of 25 Fascinating Facts About Personal Debt, a typical American family today pays about $1,200 annually in credit card interest. And, the average interest rate on credit cards is 18.9 percent.

How much equity do you have to cash out on? For a refinance, lenders base how much equity you have on your home's loan to value (loan to value)-the relationship between the unpaid principal value of your existing mortgage and the property's appraised value or sales price, whichever is lower. For a 2nd mortgage, it's based on your home's combined loan to value (CLTV)-the relationship between the unpaid principal balances of all the mortgages on your property (typically a 1st and 2nd mortgage) and the property's appraised value or sales price, whichever is lower.

Home Equity Installment Loan or Home Equity Line of Credit? A home equity installment loan (HEIL) is generally the best choice for debt consolidation because you'll be to lock in as low an interest rate as possible and that rate won't change during the life of the loan. Your payments will also stay the same through the life of the loan. Home equity lines of credit (HELOCs) are typically variable rate loans and are generally better for shorter-term borrowing, or to cover emergencies.

Maria Ny is an acclaimed free-lance writer from San Diego. She has published many articles that covered a broad range of subjects ranging from Debt Consolidation, Bankruptcy Reform, Credit Repair to Subordinate Financing. Check out her helpful articles online at BD Second Mortgage Loans . You can learn more about financing credit card debt and get additional loan parameters for debt consolidation loans. Get a free loan quote for a home equity loans . We suggest you get more information and learn more about the guidelines for fixed rate second mortgages that could help lower your monthly payments by reducing the high interest rates of your credit card debt.


Article Source:

Rate this Article: 
Montana Home Equity Loans - Home Equity Loan vs. Cash-Out Refinancing
Rated 4 / 5
based on 5 votes

Related Articles:

Bad Credit Cash Out Refinance Loans - Tips On Taking Advantage Of Your Home ..

by: Sharon Listner (January 05, 2007) 

Cash Out Your Home Equity With A Refinance Loan

by: Kum Martin (October 02, 2006) 
(Real Estate)

Cash Out Refinance Mortgage Loans - Home Equity, 2nd Mortgage or Cash Out ..

by: Carrie Reeder (March 29, 2005) 
(Finance/Mortgage Refinance)

Poor Credit Home Equity Loan Tips - How to Find the Best Home Equity Loan

by: Carrie Reeder (January 04, 2006) 
(Finance/Mortgage Refinance)

Home Equity Loan Refinance Credit Card Debts

by: Steven Turner (July 03, 2007) 
(Finance/Debt Consolidation)

Equity Home Refinance - Find Right Home Equity Loan Expertise to assist you to ..

by: Johnson Smth (December 19, 2011) 
(Insurance/Home Owners Renters)

Home Owner Cash - Tips for the Best Home Equity Loan

by: Michael Benifez (April 10, 2007) 
(Real Estate)

Home Equity Line of Credit, Bad Credit Home Equity Loan and Home Equity Mortgage

by: Ken Bissonette (December 18, 2005) 

Would You Like To Pay For That With Cash, Credit Or A Home Equity Loan?

by: Albert Alexander (September 04, 2007) 

Montana Home Equity Loans - Home Equity Loan vs. Cash-Out Refinancing

by: J. Hale (November 17, 2006) 
(Real Estate)