Refinancing Equity
If you have had your present home loan for at least 12 months, preferably longer, and house prices in your area have been rising, therefore increasing your home’s value, you might find yourself in the position of being able to take advantage of refinancing equity in your home.
The ability to be able to use the equity you have built up is one of the great benefits of home ownership. Refinancing equity or ‘cash out’ refinancing is beneficial for home owners who want to finance their children’s higher education, or to make a considerable purchase, that would otherwise necessitate taking out of a personal loan with a much higher interest rate repayment.
The major attraction with the taking out of a home equity refinancing loan is that the interest will be low compared to other loans and there could be the added benefit of taxation deductions being allowed.
The best reasons for refinancing equity on your therefore home are:
- Financing improvements to your property or
- Purchasing an investment property.
Refinancing Equity – How does it work?
Most lenders will consider a home equity refinancing loan of up to 75 per cent of the value of the home.
For a home with a value of $240,000 and your present loan balance is $140,000 you may be able to obtain a new $180,000 mortgage. This would let you pay off the $140,000 still owing on your existing mortgage and leave you with $40,000 to spend on whatever you have planned.
Another approach is to take out what is known as a refinance home equity loan which is more commonly referred to as a ’second mortgage’. In this case you will most likely be able to arrange the new mortgage to finance up to 85 per cent of the value of the property.
A home equity refinancing loan however usually comes with a higher interest rate but draw periods on the loan can be taken up to 15 years hence.
A more modern development has seen the emergence of home equity lines of credit.
This type of refinancing equity will allow you to access cash advances with a credit card up to an arranged credit limit. The equity in your home is used as the security determining the amount of credit you can access.
Refinancing equity – Who is best suited to benefit most?
The home owners who would benefit most from a home equity refinancing loan, rather than a cash out refinance arrangement, are those who intend to pay the loan back in the shortest time possible and who don’t need to borrow a large amount as banks will generally make available their lowest interest rates on the shorter term home equity refinancing loans.
A refinance home equity loan taken out over a longer term will attract interest rates greater than the average fixed rate mortgage. Therefore if you are a home buyer who wants to access up to $100,000 you will find you will have to take the new mortgage out over a longer term to keep your repayments down to a manageable level.
For more information about refinancing to access equity in your home, contact Home Loan Finder now.
Related posts:
- When Refinancing Doesn’t Make Sense
- Benefits of Refinancing a Home Loan
- How Mortgage Brokers Can Help with Refinancing
- Home Loan Refinance Rates
- Refinance Bad Credit Home Loan – What You Need To Know About Refinancing Non Conforming Loans
- Tips for Refinancing Your Home Loan
- Cash Out Mortgage Refinance
- Refinancing Interest Rate
- Refinancing a Home with No Equity
- Refinancing Closing Costs
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