Need an extra $10,000 to pay off high-interest credit cards, home improvements, or to take that long-awaited vacation? You can have it sooner than many people realize by using a home equity loan. Regardless of how long you’ve been in your home, if you have any value above your mortgage balance, you can probably take out a home equity loan.
Some people are hesitant to borrow more money on their home. They fear their loan-to-value will be too high, and a lender will not allow them to borrow more of their home’s equity. Others believe that the closing costs on an equity loan are similar to those of a standard mortgage, so they, too, disdain a home equity loan. In most cases, all of these people are way off base.
Many lenders will loan up to 100 percent of the value for a home equity loan, and some offer home equity lines of credit (or HELOC), with no closing costs. What’s important to understand is that most homeowners should be seriously considering a home equity loan, because of the shear financial power it provides.
Unlike conventional mortgages, home equity loans are paid back with interest-only payments, and have no taxes or insurance added, which make for extremely low payments. This means you can get tens of thousands of dollars for as little as $33 per month on your equity loan. Imagine having 10,000 dollars and paying this little to use it!
What’s more, if you use this equity properly, you can pay off debt, saving hundreds monthly. Then, in a few years, you can get a new home equity loan, with the new equity you have built in your home from simple appreciation in value.
Here’s a great story about the power of equity. When I was in the home loan business full time, I had a client, who was going to sell his beautiful home, which he loved, because he needed money for his daughter’s college education. Little did he know that the money was right at his fingertips, locked away in the vault inside his home. All he needed was the right combination to get it out.
When I showed him how he could get a $50,000 home equity loan for less than $180 per month, he was astonished. “I figured a home equity loan would be like a whole new mortgage,” he said. “You know, around $500 per month, and I could never afford that, on top of my current mortgage payment.”
The Money Cycle…
He was even more excited when I taught him how to pay that loan off later, using his house again, while taking even more money. This is what is called the Money Cycle.
Your home equity loan can create this never-ending cycle. Imagine paying off a car, a credit card and another loan, all at high interest with combined payments of over $600 monthly. Your home equity loan payment is $180, saving you over $400 per month and $5,000 yearly. Now, instead of spending this extra cash, what if you go to your financial planner and have him invest the money for you?
Suddenly, you’re building wealth and creating cash flow. Now, in a few years, your home appreciates, and you either sell or refinance to a new loan, getting more cash and starting the cycle over again.