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How Can A Home Loan Bring The Most Value To My Home?
Posted by nick_niesen on October 29th, 2010
It is true that you can use the equity in your home as a way to get a secured loan for home improvement. In fact, it is being used now as a common way for people to get money to make their home improvements and fill some of their dreams. In order to get the best value out of your equity, not every home project will work. Here is how you can get the home equity you need and make those improvements that make a valuable addition to your home.
If you have lived in your home for a few years, then you most likely have some equity in it. Two of the most common ways to get to that money, is by either refinancing your first mortgage and getting a cash out mortgage, or by getting a second mortgage with a home equity loan or a home equity line of credit.
Your circumstances will determine what is the best for you. The interest rate, though, on a first mortgage is usually lower than a second mortgage, and if you have an adjustable rate mortgage now, you may be looking to refinance and getting into a stable fixed rate mortgage. On the other hand, you may only want to get enough money for your project, and can afford an additional payment from a second mortgage. You will certainly then want to consider a home equity line of credit in which you can draw out only as much as you need, and will only pay interest on that amount.
The best thing about a home loan that increases the value of your home is that the money used for that purpose is also tax deductible. This means that you are actually paying less for it than the interest rate you are given. Plus, your home is gaining in value - if you do the right projects.
Although, you certainly can do anything you want with the cash out of your home's equity, putting at least some of it back into your home is your best possible move. Currently, there also are some specific things that will give your home the best return in increased value. It is possible that they may not be what you think. These things include hi-tech renovations to your kitchen or bathroom, adding siding to your home, or adding an addition - such as a bedroom.
Before you go and sign up for the first home loan that you can find, you should do some homework first. There are some scams out there, and it will take some knowledge on your part to avoid them. Use mortgage calculators to determine the actual cost over the long term, and get several comparison quotes. Watch out for any early payoff penalties.
Another thing that you want to avoid is private mortgage insurance. This can be avoided by not borrowing more than 80% of your home's value - if you are refinancing a first mortgage.
Finally, you should check - before you get a secured home loan, if the value of homes in your area is going up or down. This will let you know whether or not you can expect to recover some of your investment when you sell the house. You can find this out by talking to a Realtor in you neighborhood. If homes are losing their value around you, you may want to reconsider.
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