July 10th, 2020 11:21 AM by Shelly Bryant
Home Equity Loans or Mortgage Refinancing and it's benefits:
Shared from https://money.com/best-home-equity-loans/
There are times when having a little extra cash around can bring you peace of mind. You could use the money to pay down high interest debt, make needed home repairs, or pay for unexpected medical costs. Sometimes, that extra cash can be found right under your feet.
After paying down your mortgage for years, you might have a nice chunk of equity in your home. Equity is the current market value of your home minus what you owe on it. So, if your place is worth $300,000 and you have $200,000 left to pay on your mortgage loan, you have $100,000 of equity.
Tapping your home equity can free up cash to pay down debt or undertake renovations, among other purposes. But that money isn’t liquid unless you do a cash-out refinance, get a home equity line of credit (HELOC), take out a home equity loan, or sell your home outright. (Learn more about the different types of loans below.)
“Home equity loans or mortgage refinance may make sense for current homeowners as they are secured debt and the average interest rate is typically lower than what you’ll pay on an average credit card or other form of unsecured debt,” according to Discover Home Loans.
Before deciding to take out equity from your home, however, it’s important that you do your homework. While the allure of being able to access the equity in your home is appealing, you need to make sure it is the right move to make, especially during tough times. This means talking to an expert that can help you view all the pros and cons of each action. “Don’t try to sort it through yourself,” says Troy Molitor, founder of Molitor Financial Group. “The best advice that I would say to people is get advice.”
If you’re interested in getting a home equity loan or a HELOC, we’ve rounded up the best lenders that can provide you with one. But before we share that list, there are some important points you need to know about home equity loans first.
Before applying for a home equity loan or a HELOC, make sure you understand the pros and cons of these financial products and the differences between them:
A variety of different lenders offer home equity loans and HELOCs, and you can always start by requesting a quote from the company that offered you your primary mortgage. But shop around–there’s no rule that you have to take out a home equity loan or a HELOC from your original lender. Below are some of the best companies that offer home equity loans and HELOCs.
We’ve gathered the five top picks for the best home equity loan companies. Learn more about them, why they made the list, and what types of home equity loans they offer.
July 2 update: Navy Federal has temporarily stopped accepting new applications for home equity loans or lines of credit. Applications that were already accepted are not affected by this decision and are being processed.
Navy Federal is a credit union, which means it is a membership-owned financial corporation. In order to become a member of Navy Federal Credit Union, you have to meet certain criteria, namely being associated with the military.
If you’re eligible and want to apply for a HELOC or home equity loan, Navy Federal Credit Union is known for its attention to the customer experience. Navy Federal Credit Union ensures all of its customers have a smooth application process through HomeSquad, a customized digital experience that you can use to apply for your home equity loan. It will create a checklist for you to help keep your paperwork organized, and you’ll have team members helping you every step of the way.
This system of combining technology with personalized attention helped Navy Federal Credit Union earn a spot on this list.
If you want to get a home equity line of credit quickly, try Figure. Figure is a newer mortgage company that offers mortgage refinance loans as well as HELOCs. However, it does not offer home equity loans at this time.
You can apply for a HELOC in five minutes, and Figure even offers same-day approval. You can get funding in as little as five days as well. According to Figure, obtaining a traditional HELOC could take 30 to 45 days, so it truly is among the fastest in the industry. The lender offers an online notary feature to help make the closing smooth and completely online.
Keep in mind, though, speed doesn’t always mean the lowest rates. If you have time to shop around, it’s wise to do so. Figure does have some fees that other lenders don’t, a tradeoff for its quick approval time. Interest rates will start at 3.49% for borrowers with excellent credit, plus a 4.99% origination fee. It depends on your priorities, and if getting a HELOC as quickly as possible is one of yours, Figure might be a good fit for you.
Discover Home Loans has been around for more than 30 years. It made the list because it has a commitment to transparency when it comes to home equity loan fees. This means no surprise charges for borrowers.
With Discover Home Loans you can access from $35,000 up to a maximum of $200,000 of home equity. Interest rates are fixed and will start at 3.99% and go as high as 8.99% for first liens and 11.99% for second liens, although these rates are subject to change without notice. You can easily see if you qualify by providing some basic information before you formally apply for a home equity loan. Closing on your loan won’t be a problem either, as Discover’s eClosing feature allows for the electronic signing of many closing related documents prior to the physical closing, and should be available nationwide by the end of May.
Discover Home Loans also offers a range of repayment plans, from 10 to 30 years of fixed payments. You should have good credit and adequate equity in your home before applying for a Discover home equity loan. Once you do, you’ll get assigned a banker who will help you through the application process. At the moment Discover Home Loans does not offer HELOCs.
According to the 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study, Regions Bank took the top honors, beating out national industry heavyweights. This study rated loan offerings and terms, customer interaction, the billing process, and more.
Regions Bank offers a fixed introductory rate of 0.99% for the first six months of a HELOC, with rates shifting to adjustable after the introductory period. Adjustable interest rates range between 3.75% and 10.38%, with a maximum cap at 18%. An interesting feature of the Regions Bank HELOC is its Loan in a Line option, which allows you to convert part or all of your remaining adjustable rate loan balance into a fixed rate loan.
In addition to HELOCs, Regions Bank also offers home equity loans. In fact, it has a handy tool that helps you decide which loan product might be best for you. Unfortunately, it doesn’t have branches in every state, and the property you take the loan out on must be located in a state where there are bank branches, but if you live near one, this could be a great option for you.
Ranked third in the 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study, BB&T offers both home equity loans and HELOCs. We value it as one of our top picks due to the great perks it offers.
For example, there is no prepayment penalty if you want to pay back your loan early. BB&T will also pay the appraisal fee for you to get the current value of your house, a benefit that could save you several hundred dollars. The company also has many different options when it comes to HELOCs, including both fixed-and variable-rate loans and no-closing-cost options.
Not every mortgage lender offers home equity loans and HELOCs, so our first step was identifying which lenders carried one or both of these types of products. Then, we checked the rankings on ConsumersAdvocate.org to see which companies came up first in a nationwide search for the best home equity loans. We also relied heavily on the most up to date 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study.
Some other factors we considered were client satisfaction, customer service, variety of loan offerings, perks, price transparency, and overall customer experience. Here’s why these qualities are important in a lender:
When you take out a HELOC or home equity loan, you’re taking out a second mortgage. That means paperwork and fees. Some banks roll many of these fees into your loan so you might not notice them or feel their impact as much. However, it’s still important to know about them so you can adequately compare lenders. That’s why we value lenders that are upfront about their fees and clearly state what they charge.
Going through the process of getting a home equity loan can involve a lot of work. However, lenders can go a long way to ensure their clients are satisfied. They can also ensure excellent customer service and make the process as smooth as possible. The lenders who made this list all put significant effort into customer satisfaction.
Banks constantly compete against each other when it comes to interest rates and other perks, such as convenient account access, competitive fixed interest rates, and no prepayment penalty options. Naturally, we ranked companies that provided the most customer friendly service advantages higher.
There are three main ways for people to get equity out of their homes: HELOCs, home equity loans, and cash-out refinances. Each one of these lending products requires that you have equity in your home, but they are all a little bit different. When trying to take advantage of the equity in your home, it pays to consider all options. “Don’t limit your research to one product,” according to Discover Home Loans. The lender went on to point out that while information about products that have worked for family and friends can be useful, that information should be used as a starting point. “It is important to understand what features are the most meaningful for your individual financial situation.”
A HELOC is a home equity line of credit. Much like a credit card, you only use it when you need it. It’s not a lump sum payment, and the interest rate can be variable, although some lenders on this list do offer fixed-rate HELOCs. The pros are that HELOCs typically offer a low interest rate and are easy to get if you have good credit and adequate equity in your home. The con is that the payments can be variable and unpredictable depending on how much you borrow.
A home equity loan is a lump-sum amount that you pay back in equal installments. The benefit of signing up for a home equity loan is that you will have a set repayment amount. Rates are typically lower than a credit card or personal loan if you have a good credit score, but you will have to use your house as collateral.
A cash-out refinance is when you replace your mortgage with an entirely new mortgage. The way it works is that you make a loan for a larger amount than what you currently owe, and you cash out the additional amount. With this option, you won’t have two mortgages, but it’s a more time-intensive process and could involve more fees and closing costs.
As you can see, you have options when it comes to taking advantage of the equity in your home. The trick is to determine which is the best option for you, and that, according to Eddie Wilson, president of the American Association of Private Lenders, will depend on the situation. “It really comes down to how you’re going to use the money, how much of the money you’re going to use, that actually determines what method to use,” he says. It’s important to study all alternatives before choosing how to use your equity.
A HELOC offers flexibility and a reusable pool of money. “The nice thing is that HELOCs give you the ability to expand and contract based on the money that’s needed, like a credit card,” says Wilson. You only pay interest on the funds you withdraw from your line of credit, so it could make for an excellent source of an emergency fund.
Say you take out a $40,000 HELOC and use $10,000 for a needed home repair. You’ll only pay interest on those $10,000, while keeping $30,000 available. Once you pay down the $10,000, you’ll once again have $40,000 to use. The key with HELOCs, according to Molitor and Wilson, is to only use what you need to use, and make sure you can pay that balance down within a reasonable period of time.
A home equity loan, on the other hand, may be an option if you need a lump sum to cover a specific debt or need. For example, if you have $40,000 of credit card debt at a high interest rate, a home equity loan could be a better option. You can pay off that high interest debt and convert it into a lower interest loan that you pay off over a longer period of time with a lower monthly payment.
With a home equity loan, or second mortgage, know that you’ll have that additional monthly payment on top of your primary mortgage payments. While primary mortgages have insurance and other federal guarantees, second mortgages don’t. Make sure you can afford the additional payments.
As with a home equity loan, a cash-out refinance might be a good choice if you need a large amount of cash to pay off higher interest debt or take care of an unexpected medical bill or home repair, while reducing the interest rate on your primary mortgage. While the interest you pay on a cash out refinance is tax deductible and the reduced monthly payments can provide some extra cash, by extending the term of your mortgage you may end up paying more in interest over the life of the loan. However, if you also reduce the term of your loan while reducing interest, you can save on interest both in your monthly payments and in the long run over the life of the loan.
Regardless of which option you eventually choose, make sure you understand all the costs associated with the loan or line of credit. If it’s an adjustable rate loan, be sure to understand that your monthly payments will change with current interest rates. While these rates remain low your monthly payments will be low. However, at some point those interest rates will start to go up, which means your monthly payments will also go up. You need to be able to afford those higher payments.
If you’re unsure about how to proceed or which option is best for you, seek out an expert opinion. “Don’t go where you feel like you’re being sold,” says Molitor. “Look for someone that’s going to educate you, give you options, and then you get to make a decision based on the information.” Molitor went on to explain that you should know the effect of taking out equity in your home will have not only now, but five or ten years down the line.
While lower interest rates led to a rush to refinance mortgages during early March and April, lenders have started to tighten their lending requirements. In recent weeks many of the major banks have stopped accepting new applications for cash-out refinance loans.
This credit tightening is due to a number of factors. The unemployment rate climbed to the highest rate in history, reaching 14.7% for the month of April, with over 23 million people out of work. With unemployment numbers changing weekly, lenders are having to request multiple employment verifications, some as late as the same day of closing, to ensure a borrower’s creditworthiness.
Other changes banks have been making include increasing the required minimum credit score, requiring a higher down payment, and placing caps on the amount of money the bank is willing to refinance.
HELOCs have also been affected by these stricter loan requirements. Not only are banks increasing credit score requirements, they’re also limiting the amount of money they will lend for a home equity loan as well as lowering the percentage of the home’s equity they are willing to lend.
Despite the difficulty in getting these types of loans, you can still find lenders who are accepting applications for both cash-out refinances and HELOCs although, according to both Molitor and Wilson it may be easier to access a HELOC at the moment. Before applying with any lender make sure what their requirements are to see if you qualify, and make sure the loan you’re applying is the right choice for your needs.
Getting a home equity loan or a HELOC is a major financial decision. This is because you use your home as collateral, and if you fail to pay these loans back, it’s possible that the bank will foreclose on your home. There’s also the risk of a market downturn, which can cause your home to drop in value. Having two mortgages out on a home that drops in value brings the risk of owing more on the home than it’s worth.
Even so, many homeowners use home equity loans every year in order to free up cash flow or boost their home’s value through renovations. In those instances, using a home equity loan could be a decision that helps your finances long term.
Ultimately, whether or not a home equity loan is right for you will come down to your personal financial situation, how much equity you have in your home, and what you’d like to use it for. “Understand the use of the money, what it’s intended for,” Says Wilson. “Many times people just get it because it’s available and that may not be the best choice.” If you decide to move forward with the process, consider the companies below.
The Best Home Equity Loan Companies
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