A new type of affordable 15-year mortgage aimed at moderate-income and flawed credit borrowers is getting a tryout by Bank of America and Citigroup.
Get Smart: Intelligent Ways to Use a Home Equity Loan
In the 1965 television series Get Smart, Agent 86, Maxwell Smart, did everything to not live up to his name. Luckily, he had the brilliant and beautiful Agent 99 to help him overcome all obstacles and ultimately finish as a winner. As Max would say, "If you don't mind, 99," we'd like to step in and offer some smart advice on home equity loans that you can believe.
Know Your Budget
Home equity loans are highly structured. You apply for a specific amount, you receive the money all at once, and then you repay in fixed monthly increments. This structure is ideal for funding a planned expense like a home remodel or new car purchase. If you can't budget the expense accurately, a home equity line of credit (HELOC) might be more appropriate.
Leverage the Tax Advantages
Borrowing from your home's equity may give you access to certain tax breaks that you don't receive from being indebted to credit cards or auto loans. Everyone's situation is different, however. That's why it's best to talk with your financial advisor to understand how the additional mortgage interest will affect your tax liability.
Set a Little Aside
Home equity loans have many potential uses. In addition to acting as a home improvement loan, they can be a lifesaver when tackling unforeseen expenses. If possible, avoid tapping all your equity to ensure that there's additional funding if an emergency arises.
Be a Savvy Shopper
Before you select a lender, research current home equity loan rates and shop around to get the best deal possible. If you have good credit, you should be able to obtain an equity loan with no closing costs. Be on the look-out for application fees, appraisal fees and broker fees in particular; you don't want those added to your loan balance. A recording fee might be unavoidable, but this money goes to the local government's recording office, not the lender.
Agent 86 might say that it's the old "use-your-home-equity-intelligently-to-enhance-your-life" trick. He should know. After all, his last name is smart.
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