home equity loan by boolo shah

home equity loan

Attention homeowners if you've ever wondered how to harness the equity trap within your home to improve your financial future then this video is for you today we're diving deep into three powerful Financial strategies that will help you directly access your home's Equity the home equity line of credit the home equity loan and the Cash out refinance so whether you're planning a home renovation restructuring your debts investing in your education or your business or you simply want to leverage your home's value for some Financial flexibility understanding these three options can be a game changer in this video we'll break down the differences the benefits and the potential pitfalls of each method before we get into our three strategies let's quickly break down the key factors that we'll be considering when comparing helot's home equity loans and cash out refinances number one interest rates we'll look at how your monthly payments and risks are affected by the interest rates of different options whether it's a fixed rate loan or a variable rate loan number two costs and fees we'll explore the various fees involved including closing costs and ongoing charges for each option number three access to funds will learn how quickly and easily you can access the money from your home's equity for each strategy number four repayment terms will explain .

How you'll need to repay the borrowed funds whether it's through monthly payments a lump sum payment or some other method number five tax deductibility we'll touch on the potential tax benefits like deducting interest payments but remember to always consult your CPA or other Tax Advisor for specifics number six eligibility requirements we'll look at what lenders consider when determining if you qualify for these options like your home equity income credit score and more and number seven restrictions we'll discuss any limitations or rules set by lenders that you should be aware of for each strategy all right now let's get into it the first strategy that we're going to look at to help you access your Equity is called a home equity line of credit or key lock it's a type of loan that allows you to borrow money against the equity that you have built up in your home your home's Equity is the difference between the appraised value of your home and your current mortgage balance a HELOC is a revolving line of credit similar to a credit card which means you can borrow money as needed and repay.

Home Equity Loan by boolo Shah

it as you go as you repay your outstanding balance the available amount of credit is replenished but always keep in mind that your home is being used as collateral this means that if you fail to repay the borrowed money you could lose your home the amount you can borrow with a HELOC is typically up to 85 percent of your home's appraised value minus the amount you owe on your mortgage for example say your home's value is three hundred thousand dollars 85 percent of that is two hundred fifty five thousand dollars if you still owe a hundred fifty five thousand dollars on your mortgage you'll subtract that leaving you with a maximum home equity line of credit you could receive as a hundred thousand dollars now let's get into the key factors the first is interest rates helots typically have variable interest rates which means your monthly payment can fluctuate with market conditions and rates while there may be an introductory period where interest rates start lower there's risk of higher rates in the future if rates go up next let's get into the associated costs helots can have closing costs between two and five percent of your total loan amount however they're typically lower than our other two strategies these closing costs can include home appraisal loan origination title search and insurance credit report Document Preparation notary Etc. you should also be on the lookout for ongoing fees such as Annual fees and activity charges early termination fees and minimum withdrawal amounts when accessing HELOC funds there are typically two phases to be aware of the draw period and the repayment period these periods determine how you can use and access your line of credit and determine how you'll repay the borrowed funds which we'll get into more in just a minute the drop period is a 5 10-year period where you're free to withdraw your money from your revolving line of credit up to your limit once the drop your events you enter the repayment period the repayment period typically lasts 10 to 20 years and during this time you can no longer borrow additional funds from the HELOC in other words the credit line is closed for New withdrawals regarding your physical access to the HELOC funds during the draw period your lender will give you options most lenders allow online bank transfers and withdrawals using key lock account cards if you get an account card you can use it just like a debit card to make purchases or to pull out cash at an ATM and if you're a little old school you're typically provided a checkbook that goes along with the account next up are the repayment terms the repayment schedule is also dependent on the draw period and the repayment period during the draw period which again is about the first five to ten years your monthly payments are typically interest only meaning you only need to pay the accrued interest charges on your outstanding balance this often results in a lower monthly payment than a traditional loan where you you pay both the principal and interest once the draw period ends the repayment period begins and again the repayment period is about 10 to 20 years during this period your minimum monthly payments will increase as your outstanding balance is fully amortized you are then required to make payments that cover the principal or the amount you borrowed and interest or the cost of borrowing the next key factor we'll look at is tax deductibility HELOC interest payments are typically only tax deductible if you use the funds for one of the following reasons Making Home Improvements that add to the value of your home paying off medical expenses that exceed 7.5 percent of your adjusted gross income making tuition payments for yourself your spouse or your dependents paying for energy efficient Home Improvements or paying off student loan debt.

However it's always important to discuss these deductions with a certified tax professional the next key factor is eligibility requirements the exact requirements will vary from lender to lender but generally you must meet the following minimum criteria sufficient Equity you need need to have at least 15 percent equity in your home you generally need a minimum FICO score of 620 you need to have a stable income lenders want to ensure that you have the financial means to pay for a HELOC so they might require proof of employment or income and lenders typically prefer a debt to income ratio of 43 or lower your debt to income ratio is the ratio of your monthly debt payments to your monthly income so your total debt payments including the HELOC should not exceed 43 percent of your monthly income lenders may also take into account your loan to value ratio this is the ratio of the HELOC amount you're requesting to the appraised value of your home common LTV limits are around 80 to 85 percent meaning your total Mortgage Debt including your HELOC should not exceed 85 percent of your appraised home value and lastly some lenders have restrictions on what you can use to HELOC money for it's important to read the terms and conditions of your HELOC agreement carefully before making any commitments helots are a great option.

If you have varying Finance needs over time and want flexibility you'll have access to funds as you need them and pay as you go if you're enjoying this video so far smack that like button and subscribe so I know to make more videos like this in the future okay the second Equity access strategy we'll look at today is home equity loans a home equity loan also known as an equity loan or a second mortgage is a type of loan that allows home buyers to borrow a fixed amount of money in one lump sum by using the equity they have built up in their home as collateral you can think of this as another mortgage payment but for a secondary smaller amount similar to a HELOC you can typically borrow up to 85 percent of your home's appraised value minus the amount you owe on your mortgage regarding interest rates home equity loans typically offer fixed rates providing predictability in your monthly payments unlike helots there's no risk of fluctuating rates you can expect closing costs to be anywhere between two and five percent of your loan amount similarly these include fees for the appraisal loan origination title search Insurance credit report Etc. while home equity loan closing costs are typically higher than HELOC closing costs you don't really have to worry about ongoing fees with a home equity loan typically you receive the entire lump sum via wire transfer after closing there are no separate phases or periods like there are with a HELOC as mentioned before home equity loans typically have fixed monthly payments these payments include both the principal and the interest and home equity loans are amortized just like a normal mortgage would be so the structure remains consistent throughout the entire term which usually ranges between 5 and 30 years and similar to a HELOC the interest payments can be tax deductible depending on what the funds are used for requirements again are dependent on the lender but in most cases they're about the same as the HELOC requirements at least 15 percent equity in your home a minimum FICO score of 620 stable income a debt to income ratio 43 or lower and your loan to value ratio should not exceed 85 percent and typically home equity loans have fewer restrictions than helots home equity loans are great for one-time payments especially if you're looking for a consistent fixed rate payment and the last Equity access strategy that we're going to look at today is the good old-fashioned Cash out refinance a Cash out refinance is a mortgage refinancing option that allows homeowners to refinance their existing mortgage while also borrowing additional funds this type of refinancing replaces the original mortgage with a new one often at a higher loan amount and the homeowner receives the difference in cash at closing lenders usually require you to keep about 20 percent of equity in the home which means that you can usually borrow up to 80 percent of the value since a Cash out refinance offers you a new mortgage altogether rates can be fixed or variable depending on which loan type you choose but be warned if you're locked in at a great interest rate it does reset it to the current market value regarding costs and fees a Cash out refinance is usually one of the most expensive options as it involves traditional mortgage closing costs these can range anywhere where from two to six percent and similar to other strategies these closing costs include appraisal loan origination title search title insurance and more lenders offer access to funds through a lump sum payment up front after closing which usually takes about three to five days a Cash out refinance involves a new mortgage with a specific term typically ranging from 15 to 30 years this includes an amortization schedule and your monthly payments will include principal and interest since you're replacing your entire mortgage interest paid on a Cash out refinance is also typically tax deductible regarding eligibility requirements are at least twenty percent equity in your home you can usually refinance with a credit score as low as 580 but to pull money out you typically need to be closer to 620 you'll need stable income a debt to income ratio 43 percent or lower and your loan to value ratio should not exceed 80 percent lastly there are no real restrictions on what you can do with your money on a Cash out refinance once you receive the cash after closing it's yours it Cash out refinance can be one of the more expensive options but it often comes with some of the fewest strings attached to your money they can be particularly appealing.

if you want to take advantage of falling interest rates or restructure your loan term for example from a 30-year term to a 15-year term helots offer flexibility with variable rates making them suitable for ongoing expenses and emergencies but it comes with interest rate risk home equity loans provide predictability with fixed rates and fixed monthly payments making it ideal for one-time expenses and those seeking rate stability Cash Out refinances can be beneficial when interest rates are favorable allowing you to tap into your Equity while potentially lowering your overall interest costs remember to assess your Equity repayment preferences interest rate Outlook costs and fees eligibility and risk tolerance seek professional advice and compare offers from multiple lenders to make an informed decision that aligns with your financial objectives and budget choose the option that works best for you and makes the most of your homes out as always I'm Maverick and thanks for watching Planet math I'll catch you in the next video.