79.36 million homes across America are owner-occupied. There are a whole lot of people who have achieved the goal of home ownership.
Now they make their monthly payments and work to build equity in their homes. More Americans are achieving homeowner ship than ever before because there are many different ways to finance a mortgage in today’s housing market.
One of the benefits of building equity in your home is accessing it later on in homeowner ship. With many options for accessing equity, which one is better for you? Should you go with an FHA refinance loan or home equity line of credit (HELOC)?
Read on to learn more about options for refinancing or accessing equity from your home.
What Is a Refinance FHA Loan?
In today’s hot housing market, home values are soaring, and interest rates remain historically low. If you currently have an FHA loan and have built some equity, you might consider an FHA refinance loan to access your equity.
A cash-out FHA refinance loan allows you to refinance your mortgage and access the equity in your home to use for a variety of projects around your house or other needs.
How to Refinance an FHA Loan?
With FHA loan refinance rates at historic lows, it might be the right time to consider a cash-out refinance on your FHA loan. So, how does a cash-out refinance loan work?
You need to refinance your whole mortgage and basically apply for a new mortgage. The new mortgage gets financed for more than you currently owe on the house. Then you get the difference back in cash. This allows you to borrow your equity and pay it back at very low rates.
An FHA loan calculator can help you to see how the amount you mortgage can impact your payment. It should be noted that you need to have a certain level of equity before most lenders consider this type of loan. They also will not let you borrow all of your equity.
They use a loan-to-value ratio to calculate how much equity you refinance back out.
Pros of an FHA Refinance Loan
There are several benefits to an FHA Refinance loan. One of the biggest is the current interest rates. With rates at historic lows, you might be able to refinance your mortgage at a lower rate than what you currently have on your mortgage. You can also get rid of debt with higher interest rates with cashback.
Many people choose a cash-back FHA refinance so they can consolidate debt. This can be good for your credit and save you money. You are not paying high interest rates on debt. You also lower your credit utilization. All of this can help your credit score.
You can also write off your mortgage on your taxes which is another way to use your equity to save you money.
Typically, a cash-out refinance loan comes with lower interest rates than your other option, a home equity line of credit, because it is a whole new mortgage.
Cons of an FHA Refinance Loan
There is some risk and potential negatives that go with this option too. If you opt to consolidate debt with your cashback, you are getting rid of unsecured debt and paying for it with secured debt. You run the risk of losing your home to foreclosure if you cannot pay your mortgage.
You want to factor in closing costs as you consider the savings you will achieve by paying off debt. With a new mortgage comes new mortgage terms and closing costs. Make sure the benefit you get outweighs the cost of those closing costs.
What Is a Home Equity Line of Credit?
Another option for accessing the equity in your home is to do a home equity line of credit or a HELOC. With a HELOC loan, you do not create a whole new mortgage refinancing the whole house. Instead, you get a second mortgage that will allow you to access the equity in your home as you need it.
With a HELOC, you do not get one lump sum at closing. Instead, it works similarly to a credit card. You have a line of credit that you can access. You can take money from that line of credit when you need it.
Most HELOC mortgages have terms that allow you to access funds for a number of years. After that period that will enable you to draw funds comes to a close, you would have an extended period to pay back any remaining balance borrowed from the HELOC. Anytime you access funds, then you also start making payments towards the balance.
Pros of Home Equity Line of Credit
There are few reasons to consider a HELOC. First, you have access to funds should you need them. Maybe you have a more expensive home repair or renovation. The funds are available for it.
You also only access the funds when you need them. So, instead of walking away with a large lump sum of cash, you only take out the cash when you need it and only the specific amount you need. This can help keep you from borrowing more than you need.
Cons of Home Equity Line of Credit
At the same time, knowing you have those funds available at the ready can be too tempting. Some people find they keep accessing it, only to find they are too deep on the debt.
HELOC loans also tend to have a higher interest rate than a home equity loan since the lender does not know when you might access the funds.
Find the Right Refinance Loan Option for You
Aside from actually owning your home, one of the biggest benefits is accessing your equity in your home. It is like borrowing from yourself. Both an FHA refinance loan or a HELOC offer you, as a homeowner, ways to use your equity to your advantage.
If you are interested in accessing your equity and want more information, we can help.Contact us today to get more information on the options available for you.
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.