Benefits To Doing A Cash Out Mortgage
Reasons to do an Equity Loan
What is an Equity Mortgage?
An equity loan is a product that allows homeowners to use the appraised value of their homestead property for a home loan to pull out cash. Home equity mortgages are designed for people to get cash out of their property without having to sale their house. This being said, these types of home loans have become a very popular and beneficial type of loan for consumers.
How to Calculate Your Equity
How to calculate how much equity you have vested in your home can be done by taking the market value of your home and subtracting what you currently owe on your home loan. For example, if your home is worth $200,000 and you owe $120,000, then you would have $80,000 in equity.
For some states like Texas, laws limit how much a homeowner can borrower of their equity. Texas laws limit cash out home loans to 80% of the value of the property. For instance, if a home is worth $300,000, the maximum loan amount for a cash out home loan is $240,000.
Why Do An Equity Mortgage Loan?
There are several reasons why a consumer would want to do a cash out home mortgage. From home improvements, to going on a dream vacation, to sending a child to college or even paying off high interest credit cards, there are many reasons to do a cash out home loan.
Paying Off High Interest Credit Cards
One of the biggest reasons of doing a cash out home mortgage is the amount of money you can save on a monthly basis by consolidating your debts. If you are like most people, you have credit cards with high interest rates. Let’s say that you have a home loan with a balance of $100,000 at 5% with a $550 monthly payment and you also have $50,000 in credit card debt with an average rate of 12% . The average monthly payment on the credit cards with that balance and rate would be around $1000 a month. Your minimum monthly payment for your mortgage loan and credit cards is $1550.
If you were to consolidate those debts into a home equity loan with a loan amount of $150,000 and a monthly payments at $805 monthly, you would save about $745 a month. The new cash out home loan with a payment of $805 a month will save you money compared to a mortgage payment of $550 and credit card payments of $1000. By combining the debts into one low payment, you have lowered your monthly payment load.
What could you do with that extra $745 a month?
You could pay off the new mortgage quicker, or put money into a savings account, or go on that dream vacation you have been waiting to take! Not to mention, the interest you pay on your credit cards is not a tax deduction but the interest you pay on your mortgage is a tax deduction (please consultant a tax consultant for interest deductions).
Home Improvements
Another reason to do a cash out mortgage loan is for home improvements. Since you can use the equity from your house to do whatever you want, you can use the equity for home improvements like remodeling you kitchen or even adding in a new swimming pool.
There are many different types of cash out mortgage loans from the cash out refinance to the home equity lines of credit, it is important to talk with a mortgage originator to see which home mortgage loan program is best for your situation.
David White is a Sr. Mortgage Consultant in the Dallas, Texas metro area. David specializes in Texas cash out home loans as well as Dallas home loans. David has over twelve years experience in the mortgage industry.
