Choosing the right loan is one of the most important financial decisions you will make. By understanding the features, benefits and drawbacks of different home loan options, you can align your mortgage with your goals and financial needs.
Learn about the six most common types of Sparrow Home Loans their rates and terms, and how they compare based on key factors.
Home equity loans and lines of credit offer financial flexibility to meet life’s unexpected expenses. They’re secured by the value of your home and come with the same responsibility and commitment as a mortgage. Before deciding, it’s important to consider all the advantages and disadvantages of a home equity loan or line of credit.
There are two main types of home equity loans: Closed End Home Equity Loans and Home Equity Lines of Credit (HELOC). A closed end home equity loan is a lump sum that’s paid off with a fixed monthly payment over a set period of time, just like your original mortgage. Typically, you’ll receive a fixed interest rate and closing costs for this type of loan. A HELOC is a line of credit you can access as needed, up to a maximum amount set by your lender, similar to a credit card. A HELOC can have a variable interest rate and closing costs.
To qualify for a home equity loan or line of credit, you need to have built up a significant amount of equity in your property. You gain home equity when your property’s market value increases and you pay down your principal balance on your mortgage. Your debt-to-income ratio also plays a role in whether you can qualify for a home equity product.
To determine how much you have in home equity, subtract the current amount owed on your mortgage from your property’s market value. Then, you can use that number to find out how much of your home is financed by this financing option. When you’re ready to apply, your mortgage professional will assess your needs and recommend the best option for you.
Home Equity Lines of Credit
As a homeowner, you’ve put a lot of time and energy into making your home the place you want it to be. From decorating and renovating to landscaping and keeping up with maintenance, there’s always something to do to make your house a home.
When you’re looking to access funds for a new project, unforeseen expense or the next big purchase, borrowing against the equity you’ve built in your home can be an effective and affordable solution. Home equity loans and lines of credit, both available at NB, allow you to borrow against the value of your home without having to sell or refinance.
Choosing the right loan option depends on what you need the money for, your outlook on interest rates and your attitude about debt. A home equity line of credit (HELOC) is more like a credit card than a traditional term loan and may be preferable for home improvement projects that will occur over several months, or for customers who only need to borrow a small amount on an ongoing basis.
HELOCs have a draw period, during which you can use the equity in your home, and a repayment period that requires you to make payments on the money you withdraw. They typically offer variable interest rates, which may rise or fall based on a common index such as the prime rate. Your payment amount will vary based on how much you borrow and when, so you’ll only pay for what you use.
A home equity loan has a fixed amount paid back over a set period of time, so it’s good for one-time expenses or a project that will require multiple installment payments, such as a new roof or an HVAC system. It’s also a great choice for members who need to consolidate debt or want the security of knowing their interest rate and monthly payments will not change during the loan term.
Whichever type of loan you choose, be sure to carefully consider all financial factors before committing to borrowing against your home equity. With careful planning and smart financial choices, you can put the equity you’ve built up in your home to work for you.
Home Improvement Loans
There are two big reasons homeowners undertake home improvement projects: pure enjoyment (like a backyard pool) or necessity (like fixing a leaky roof). Whether you’re renovating for a new look or adding a valuable feature, it’s important to carefully consider the average cost and return on investment. Then you can make the best decisions about financing your project.
While many homeowners pay for improvements out of pocket or with money they’ve kept in savings, a loan can be the right solution for larger-scale home improvement projects that require a long time frame and significant expense. If you’re not sure which option is right for you, talk to your tax professional or local lender. They can help you shop rates and terms, and assess your financial goals, needs, budget, and timeline.
Home renovation loans are generally used to fund major projects like kitchen remodels or a roof replacement. These loans may leverage your home equity or be unsecured, meaning you don’t use your house as collateral for the loan. Typically, these loans come with a higher interest rate than mortgage loans or lines of credit.
NIHFCU offers a home improvement loan with competitive rates, expanded repayment terms and an easy application process. This is a great option to fund a new kitchen or bath, energy-efficient upgrades or other projects on your wish list.
A personal home improvement loan is an unsecured loan that can be used to fund many types of improvements, renovations or repairs. It’s a smart alternative to revolving high-interest credit cards and quicker than tapping into home equity with a HELOC or cash-out refinance.
A HELOC is a line of credit that uses your home’s equity as collateral and allows you to draw funds as needed for any type of home improvement. Unlike a traditional home equity loan, which can be structured as a fixed- or variable-rate loan, a HELOC has a variable rate and is often based on a percentage of your home’s market value. It is usually recommended for large, one-time projects that have a set price and completion date.
Mortgage Refinancing
Mortgage refinancing replaces your existing home loan with a new one with more favorable terms, such as a lower interest rate or a shorter loan term. It can be an effective financial planning strategy to help you pay off your mortgage faster, save money or achieve other goals.
When exploring refinancing options, it’s important to start with a clear understanding of your primary reasons for doing so. This will help guide your research and keep you on track to achieve the best results possible.
One of the most common reasons for refinancing is to secure a lower interest rate, which can directly reduce your monthly payments. This can provide immediate financial relief and save you tens of thousands of dollars over the life of your loan. Interest rates are influenced by many factors, including your credit score, your debt-to-income ratio and current market conditions. Homeowners with improved credit scores and/or a substantial drop in rates due to changing market conditions are often the most likely to receive significant reductions in their interest rate.
Another reason to consider refinancing is to shorten your loan term, which can help you build equity more quickly and save on interest charges. However, you must be able to afford the higher monthly payments if this is your goal.
Lastly, you may be able to take cash out of your equity by refinancing your mortgage to include a home equity line of credit (HELOC). This is typically used for purposes like financing major expenses and debt consolidation.
When considering refinancing, it’s important to shop around and compare lenders before making any decisions. It’s also a good idea to discuss your goals with a trusted financial professional to ensure you’re getting the most out of your home financing. Once you’ve narrowed down your options, apply with your top choice lenders to begin the process. Most lenders will require you to submit a portfolio of documents, such as income statements, W2s, bank statements and paycheck stubs, to confirm your eligibility and determine your rates. It’s a good idea to stick with only a few lenders to minimize the impact on your credit.