When to Take Out Home Equity

Mortgage rates are slowly starting to fall, and many homeowners are looking to pull equity from their existing home. But under what circumstances is an equity loan a better choice than just refinancing?\r\n

\r\nIt may seem like a great idea to pull money out of a home�s value, there are only a few instances when this should be done as opposed to a strait refinance. Some guidelines should be followed when considering an equity loan. The first, and most obvious, is the rate: the best idea is to obtain a fixed rate second mortgage, as prime rate can be quite expensive. Also, find out the terms of repayment, as second mortgages can often be more complicated than firsts. \r\n

The best time to use equity is when improving the home itself, which will indeed pay for itself over time. If buying a primary home, a second mortgage can often times allow you to borrow more money for the home. Last, but not least, is paying off revolving debt. The only time a homeowner should do this is if the monthly payment for the equity loan is less than the minimum monthly payment of the debt, and the debt goes away permanently (for example, cutting up credit cards!). Education is the best tool when considering a second mortgage, and the more a person knows the better.\r\n