Ever consider tapping into your home equity?
Home equity is the market value of a homeowner’s unencumbered interest in their real property, that is, the difference between the home’s fair market value and the outstanding balance of all liens on the property. If your home value is $400,000 and you owe $280,000 on your mortgage. That means you have $120,000 in home equity that you could pull out to use however you want. Some ways to leverage your equity are:
- Home improvement (Replace Roof, Install Impact Windows, redo kitchen, etc.)
- Real Estate Investing
- Pay medical expenses
- Higher education expenses (Are children going to college?)
- Debt consolidation (Payoff Credit cards and outstanding loans)
The Rates are on the rise, so in order to get the best rate, you may want to consider the lower term options such as a 20 yr or a 15 yr. Refinance Term.
The 30-year fixed-rate mortgage is practically an American archetype, the apple pie of financial instruments. It is the path that generations of Americans have taken to first-time homeownership. Many of those buyers might have been better served if they had opted instead for a 15-year fixed-rate mortgage. The loans are structurally similar. The main difference is the term. While a 30-year mortgage can make your monthly payments more affordable, a 15-year mortgage generally costs less in the long run.
Do Mortgage Terms Impact Cost? A mortgage is simply a particular type of term loan, one secured by real property. For a term loan, the borrower pays interest calculated on an annual basis against the outstanding balance of the loan. Both the interest rate and monthly payment are fixed. Because the monthly payment is fixed, the portion going to pay interest and the portion going to pay principal change over time. In the beginning, because the loan balance is so high, most of the payment is interest. As the balance gets smaller, the interest share of the payment declines, and the share going to principal increases.
Typically 15-year loans are less risky for banks than 30-year loans. Rates are anywhere from a quarter of a percent to a full percent (or point) less, and over the decades that can really add up. The government-supported agencies that back most mortgages, such as Fannie Mae and Freddie Mac, impose additional fees, called loan-level price adjustments, which make 30-year mortgages more expensive. Some of the loan level pricing adjustments that exist on a 30 year do not exist on a 15-Year.
Here’s an example: $300,000 loan, available at 4% for 30 years or at 3.25% for 15 years. The combined effect of the faster amortization and the lower interest rate means that borrowing the money for just 15 years would cost $79,441, compared to $215,609 over 30 years, or nearly two-thirds less.
Speak with your financial advisor as you may have an incentive to invest this extra money and apply it towards your Retirement or your child’s college fund.
Contact me today to explore your options to maximize your savings.