There are several types of home equity loans. Some may be a better alternative than others based on your situation, interest rates, and what you need the loan for. The Franklin TN home equity loan options provided in this blog will help you understand your options.

Home Equity Loan Types

Cash-out Refinance

A cash-out refinance pays off your old mortgage and creates a new one. The new mortgage includes the amount of the old mortgage, the extra funds you are taking out and applicable settlement costs. Because you are eliminating the existing loan, rather than getting a new one as a second mortgage, the rates may be lower than a second mortgage. This is basically a traditional refinance except that you are extracting equity in the home. Those additional funds are given to you in one lump sum. When reviewing a cash-out refinance, compare the rate of your existing loan with the new one. If the new mortgage rate is less, then it may be a good option. Otherwise, you should evaluate other options and retain your first mortgage rate.

Home Equity Loan

A home equity loan is a second mortgage in addition to your first mortgage. With this option, you borrow a lump sum of money that you pay back over a specific amount of time, either at a fixed rate or at one that may increase or decrease at specific intervals. Second mortgage rates tend to be higher than first mortgage rates. Settlement costs also still apply.

Home Equity Line of Credit (HELOC)

A home equity line of credit usually has an adjustable rate that can go up or down when the prime rate moves. HELOCs are open-ended, so they function like credit cards. The lender identifies your maximum line of credit. You can borrow money up to that limit and can withdraw in different amounts. Your payment adjusts to the running balance. As your balance reduces, the remaining credit may still be used. Credit limits may be changed by the lender based on significant changes in the real estate market.

Find out about annual fees, cancellation fees, and mandatory minimums or withdrawal requirements. Similar to credit cards, HELOCs can be terminated by the lenders at any point. This option may be good if you are unsure about needing the full amount of the loan. However, be aware that the credit limit can be reduced, minimizing the total funds available.

Franklin TN Home Equity Loan Options

All home equity loans are determined by the current market value of your real estate and the amount of current mortgages. You can get a sense of whether you have any equity in your home by contacting a local real estate agent for a market analysis. Mortgage companies will request appraisals to determine a more definitive amount prior to approving the loan. Be careful not to take out more equity than you really require. Also make sure that the new mortgage payments are within your budget. All home equity loans use your real estate as a lien, allowing them to foreclose if you can not make payments. This Franklin TN home equity loan options article is intended as a general overview. Speak with a local mortgage consultant for up-to-date interest rates, closing costs, and other solutions.