Mortgages Other : Home Equity
(This was Written By by Craig Romero, Mortgage Analyst, www.wisemortgageinfo.com)
Are you giving away your Home Equity?
Do you know that every year you're giving away the hard-earned equity in your home by paying more than you have to in interest? Most home owners don't realize they can cut up to seven years off of the length of their mortgage, saving thousands of dollars in the process. Think it doesn't add up to a lot?
Think again. Let's lowball it and say you have an $80,000 mortgage and are paying an interest rate of 7 percent. How much will a bi-weekly payment method save you, versus paying the conventional mortgage off over 30 years?
Believe it or not, you would be saving over $25,000. The more your loan amount or the higher your interest, the more money this you can save. When you pay your mortgage bi-weekly, there are a number of factors that come into play.
You're reducing the term of your loan by up to eight years, you're paying less interest over the life of your loan and you're building up equity in your home sooner because more of your money is going towards principal than interest. The savings don't end there.
Due to the fact that your mortgage will be paid off years in advance, you will be able to discontinue your private mortgage insurance earlier than you would if you were paying over a full 30 years, thereby saving you even more money.
The bi-weekly mortgage method is also a wonderful option for people who want to pay off their homes in a shorter period of time than the conventional thirty year mortgages allow, but who don't qualify for a standard 15 year mortgage. It offers homeowners more convenience and flexibility than a fifteen year mortgage.
With a fifteen-year mortgage, if you want to change to a thirty-year mortgage, you would have to refinance. With the bi-weekly payment plan, if your circumstances temporarily change you and need to pay on a monthly basis for a period of time, there is no refinancing necessary.
So how much is someone going to charge you to save you thousands of dollars and build up quick equity in your home? There are various services available to homeowners that will take control of this process for you.
If you use them, you're wasting some of the money you're going to be saving by using this payment method in the first place. There is really no reason to enlist the help of a company to do this for you, when with the proper tools and information, you can do it yourself.
Unless you're independently wealthy and don't care where your money goes, then you will definitely want to look into paying off your mortgage on the bi-weekly plan, and learning how to do it on your own.
Using Equity to Make Home Improvements
With mortgage rates at all-time lows, it may be time to consider looking into getting that addition put on your house, or finally remodeling your kitchen or adding that additional bathroom. Homeowners who want to begin major home improvement projects may be able to finance those projects using the equity in their homes. You can tap into your home equity or cash out by refinancing your home for more than the balance that you owe on your old mortgage. And because mortgage rates are so low, you may be able to do it without a significant increase to your monthly mortgage payment.
Let’s say you want to add a small addition onto your home, and the project is going to cost you a total of $20,000.00. If you currently have a mortgage of $100,000 being financed over 30 years at eight percent interest, your monthly payment is approximately $970 per month. If you refinance at 6.5% interest, and add the $20,000 into your refinance, bringing your new mortgage balance to $120,000, your monthly payment will only go up approximately $25 per month. Better yet, if you refinance at 5.5%, your monthly payment will actually decrease.
If you have already had the addition added to your home, but you paid with a credit card or another high-interest loan, you may still want to look into refinancing. You can take the cash proceeds from the refinance and pay off the high-interest loan that you took out to build the addition. You will eliminate the monthly payment for the high-interest loan and the interest paid on the refinance may be tax deductible.
Even if you are planning on selling your home, that is even more of a reason for you to take advantage of this opportunity. Some home improvements will add more value to your home than the cost of the improvement itself, bringing you a better price for the home when you sell it. Certain remodeling projects like kitchen redesigns and bathroom additions are examples of this, and they make the home easier to sell.
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