Whats a good way to deal with the equity that youve accumulated in your home? Heres an analogy. Imagine that you have a savings bond sitting in a safety deposit box gathering dust. Your 25th
high school reunion is approaching, so you cash it in and head to the cosmetic surgeons office. A nip and tuck later, and your former classmates vote you Most Improved. Now thats a good investment!
The equity sitting in your home is just like that savings bond sitting around accumulating dust. A home equity loan or line of credit will allow you to access it. Reinvest the funds in whatever youd like, from self-improvements, like plastic surgery or going back to school, to home improvements, like a new master bath or office addition. Just be certain you understand the ins and outs of these types of loans before you begin.
SEE ALSO: 5 Disadvantages Of Home Equity Loans
Numbers Count In Home Equity Loans
You obviously want a home equity loan with the best rate your high school yearbook doesnt list you as biggest brain for nothing
. Unfortunately, lenders couldnt care less about your IQ score. What they do care about is your credit
score and the current value of your home. You cant do much to influence the real estate market, but you can control your credit rating. Keep your number high by paying bills on time, every time. Pay down the balances on your plastic, and check your credit report at least twice a year to make sure everything is accurate.
If At First You Dont Succeed
Remember when you had to ask three people out to secure one date to the dance? You might have to do the same thing to secure a home equity loan, so dont give up after the first try. Just because one lender doesnt think youre hot stuff doesnt mean the next bank you approach wont jump at the chance to dance with you on a loan. If you find several willing partners, compare their offers, and choose the best one. One piece of advice if it sounds too good to be true, it just might be.
Read The Fine Print. Better Yet, Read All The Print
There are two types of home equity loans a traditional one, and a home equity line of credit (HELOC).
With the former, you receive the funds as a one-time payment at a fixed interest rate. With the latter, you can cash in equity as you need it with a line of credit, and the interest rate is generally variable. Be wary of home equity lenders who want to tack on unnecessary fees, or stick you with a product with pre-payment penalties.
Whether you opt for a home equity loan or HELOC, dont sign on the dotted line until you understand exactly what youre in for.
Think of it as meeting her parents before the first date. If dad answers the door with shotgun in hand, its time to run for the hills. If he offers you a plate of cookies, stick around for a while. And if you find a lender who will allow you to convert the variable rate on a home equity line of credit to a fixed rate, consider marrying him.
SEE ALSO: Should You Use Your HELOC as an Emergency Fund?