Hurricane season is fast approaching for Florida residents. Have you considered obtaining a home equity loan to beef up your Florida home’s capability to withstand a storm? Home equity loans are a viable way to obtain the money to fix things up to help you save money if a strong storm hits!
So- how does a home equity loan work?
You pay your mortgage every month. Once you have paid off part of the mortgage- you can borrow against the fair market value of your home. This is known as a home equity loan or a second mortgage. Bankers are usually more likely to approve this type of loan because your home is the collateral. These types of loans generally have a lower interest rate, are easier for those with bad credit to obtain, the payments may be tax deductible and if you have a lot of equity in your home, you can get a large amount of money.
The down side is that you must pay the home equity loan back or the bank will be able to come after your home! For instance- let’s say your home is worth $100,000 and have $20,000 left to pay off your mortgage. The equity in your home is 80,000. You could borrow a portion of this money. It’s very important to decide if you want a fixed rate loan or an adjustable loan. Right now, interest rates are low, so an adjustable rate is good. However, if interest rates go up- it can raise the amount of money you pay back every month significantly.
For instance, let’s pretend you have an equity loan of $5,000 that you want to pay back over 5 years. If you have a fixed rate of 6%, your payments will be $96.66 a month. If the interest rate goes up to 8.5% you monthly payment is increased to $101.98. This may not seem like a big difference. But let’s say that you need to borrow a much bigger sum of money. A $50,000 loan at 4.5 % over 20 years would be $316.32 a month. That same loan at an interest rate of 8.25% raises the monthly payments to $426.03. So if you do have an adjustable rate equity loan, make sure you have a sense of where interest rates are, and what direction they are heading.
So- whether you decide to use your money to get your tropical Florida home storm-ready, buy a new car or take that dream vacation- know all of your options and research your choices wisely.
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