Mortgage Equity Loan Refinance

The thing is, the actual equity value is not a constant factor. In these days of fast changing real estate prices it can often present a problem for some homeowners. So, the equity is really dependent upon the home's value, prevailing market conditions and the terms of the home loan. Equity is increased by paying off the mortgage. Initially this is quite difficult to achieve due to the fact that in almost all cases the majority of mortgage payments go toward paying off interest so the principal is only being reduced slowly during the first few years. 

Home equity can be increased more quickly by reducing the term of the home loan as a greater percentage of the repayments go directly to paying of the principal. 

It is also possible to increase a home’s equity by undertaking home improvements that will effectively increase the value of the property. It is worth keeping in mind in the short term it is likely that renovations and improvements are unlikely to recoup the full amount of the cost. With renovations, if the home is just being brought up to a par standard for similar properties in the neighborhood, no matter what is spent the market value will not exceed that of similar properties so proper budgeting is essential. 

Ideally the home equity would increase naturally without any input whatsoever. As property value is dependant upon market value which in turn is a factor of interest rates, inflation and the general state of the economy it can be seen that home equity can be quite volatile. It is a rule of thumb that property prices will increase with time so property is always considered a good long term investment  but it doesn't help the ordinary man and woman trying to survive for the "now". It is also possible that bad market forces can result in negative home equity which means that your home is not worth as much as the outstanding mortgage.

-->

Negative equity can also occur with an interest only mortgage. This is where the monthly payments may just be covering the interest or even only a portion of it. At the end of an interest only home loan term, the lender is still owed the principal together with any outstanding interest. This could mean owing more than the actual market value of the home. To avoid a negative equity situation it is a good idea to make sure that some of the mortgage payments are reducing the principal and if possible try to buy property where the home prices are realistically increasing.

The general rule is being able to borrow 75 - 80% of a home's current market, (appraised), value minus what is owed on the first mortgage. This is known as the LTV or  'loan to value' ratio. Some lenders may allow up to 100% of a home's value but please be aware that if this option is chosen and a move is required due to job relocation or whatever, the sale of the home may not provide sufficient funds to pay off both the mortgage and the outstanding home equity loan. 

Happily, home values have nationally increased on average by about 5% annually since 1968. Home equity loans allows us to use this extra wealth in our properties and the good news is that generally the interest rates are lower than for other types of loans and may additionally may have tax benefits attached to them.

-->

Avoid Foreclosure Site Links