Ellicott, Maryland, also called Ellicott City, is a great place to call home. With nearly sixty thousand people, and a ranking of twentieth on CNN Money’s Best Places to Live list, it is not hard to see why the population, and the housing prices, increase every day here.
If you have lived in Ellicott, for some time, you may be considering whether to refinance your home or take out a home equity loan. There are lots of reasons to do both, but it is important to consider which type of loan would best fit your needs.
Both cash-out refinance loans and home equity loans offer you cash for your home’s equity. Equity is the difference between what your home would go for on the open market, according to an appraiser’s report, and the balance that is currently left on your mortgage. For example, if your home was worth $120,000, and you had a balance of $80,000, your equity is $40,000, and most mortgage lenders and brokers will let you borrow one hundred percent of the value of your home in a cash-out refinance or home equity loan.
A cash-out refinance replaces your initial mortgage with a new mortgage. You will choose a brand new type of loan as well as a new rate and term. Your refinance loan will pay off your initial mortgage and give you a check for the difference. When it is time to make your first payment, you will make only one payment to the new mortgage company. A home equity loan works in addition to your mortgage. They are sometimes called second mortgages for this reason. When it is time to make your first payment with this type of loan, you will make your regular mortgage payment and a payment to the company you took out your home equity loan with.
You may also be familiar with the term home equity line of credit. This is a lot like a home equity loan, but instead of getting your money in one lump sum of cash, you will get your money on a credit card or in an account you can write checks out of. You will borrow only as much as you need at a time, and pay interest only on the money that you borrow. Once you have paid it back, feel free to borrow and borrow again.
If you are an Ellicott homeowner looking into both refinancing and home equity loans, the decision depends on your situation. If you need to access the equity in your home, but you got a good rate and term the first time around with your mortgage, a refinance is not right for you. If you would rather refinance your home and get a new loan with new payment options, a refinance is definitely the way to go.
If you do not already have an Ellicott home, the first step in the mortgage life cycle is the initial mortgage. However, the good news is that mortgages have changed considerably in the last twenty years. Instead of just choosing between a fixed and adjustable rate product, you can now choose from things like interest only loans, options ARM loans, and balloon loans to get the best mortgage to fit your individual needs. Talk with your lender about loan pre-approval before you ever start the shopping process, and you will have a better chance of getting the Ellicott home of your dreams.
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