| Reasons To Do A Cash Out Mortgage |
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Reasons to do an Equity Loan
Advantages of a Cash Out Loan What is an Equity Home Mortgage? A cash out home mortgage is a product that allows consumers to use the value of their house for a home loan to pull out cash. Cash out home loans are designed for people to get cash out of their property without having to sale their house. This being said, these types of home loans have become a very popular and beneficial type of loan for homeowners. How to Calculate Your Equity How to calculate how much equity you have vested in your house can be done by taking the appraised value of your home and subtracting what you currently owe on your mortgage loan. For example, if your house is worth $100,000 and you owe $40,000, then you would have $60,000 in equity. For some states like Texas, laws limit how much a homeowner can borrower of their equity. Texas laws limit cash out home loans to 80% of the value of the property. For instance, if a property is worth $100,000, the maximum loan amount for a cash out home loan is $80,000. Why Do An Equity Loan? There are several reasons why a consumer would want to do a cash out home loan. From paying off high interest credit cards, to pulling cash out for home improvements, to going on a dream vacation and sending their child off to college, there are many reasons to do a cash out home loan. Paying Off High Interest Credit Cards One of the biggest reasons of doing a cash out loan is the amount of money you can save on a monthly basis by consolidating your debts. If you are like most homeowners, you have credit cards with high interest rates. Let's say that you have a home mortgage loan with a balance of $100,000 at 5% with a $550 monthly payment and you also have $50,000 in credit card debt with an average rate of 12% . The average monthly payment on the credit cards with that balance and rate would be around $1000 a month. Your minimum monthly payment for your home mortgage and credit cards is $1550. If you were to consolidate those debts into a cash out home loan with a loan amount of $150,000 and a monthly payments at $805 monthly, you would save about $745 a month. The new cash out home loan with a payment of $805 a month will save you money compared to a mortgage payment of $550 and credit card payments of $1000. By consolidating the debts into one low payment, you have lowered your monthly payment load. What could you do with that extra $745 a month? You could pay off the new home mortgage quicker, or put money into a savings account, or go on that dream vacation you have been waiting to take! Not to mention, the interest you pay on your credit cards is not a tax deduction but the interest you pay on your home loan is a tax deduction (please consultant a tax consultant for interest deductions). Home Improvements Another reason to do a cash out mortgage is for home improvements. Since you can use the equity from your home to do whatever you want, you can use the equity for home improvements like adding a swimming pool or even remodeling a kitchen or bathroom. There are many different types of cash out home loans from the cash out refinance to the home equity lines of credit, it is important to talk with a mortgage officer to see which home mortgage loan program is best for your situation. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. David White is a Senior Mortgage Advisor in the Dallas, TX metro area. David specializes in TX cash out home loans as well as Dallas home loans. David has over 12 years experience in the mortgage industry. Free reprint avaialable from: Reasons To Do A Cash Out Mortgage. |