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The Skinny on Home Equity Loan Mortgages, Mortgage Refinance

By Nathaniel Hutchinson Business and Financial Expert


According to Freddie Mac's most recent Primary Market Survey, fixed interest rates remain near record lows, with 30-year rates at 4.00 and 15-year rates at 3.31. The low rates make now a great time to buy a house or rework an existing home loan. Unfortunately, the same can't be said for those looking to tap their property's equity. Many people don't understand the difference between home equity loan mortgages, mortgage refinance and the typical home loan. Before you contact a lender, learn why the current housing market is proving beneficial for some and catastrophic for other.

Is now a good time for mortgage refinance?

If you're looking to save on an existing loan by refinancing, you're in luck. Low interest rates mean you'll likely pay less under normal circumstances. By switching from a 30-year loan to a 15-year plan, you can pay off your home early and save on costly interest payments. On the other hand, you could also refinance to a longer-term loan and reduce your monthly mortgage payments, as long as fees and closing costs don't eat up too much of your savings.

Are home equity loans a good idea right now?

Unfortunately, this new measure only extends the limits another few months, when HUD and Congressional leaders plan to revisit the topic to see if a reduction is in order. Many who rely on the reverse mortgage industry have expressed worry that any potential reduction could have a seriously negative impact on certain homeowners who live in areas with high-priced homes. In response to such fears, numerous seniors have moved quickly to borrow against their home's equity before the HUD reverse mortgage lending limits expire in a few months.

Although current interest rates remain low, home equity loan mortgages donít make a lot of sense due to declining home values. According to the real estate tracker, Zillow, over a quarter of American homeowners are underwater on their current home loan, and many more have lost significant amounts of equity, thanks to a glut of cheap housing which has inevitably driven prices down. On the other hand, some people can get a home equity loan, because property values vary widely depending on the specific state, city and neighborhood.

If you have relatively good credit and are hoping to rework your existing home loan to better fit your financial situation, refinancing makes a lot of sense right now. On the other hand, if you are hoping to tap your home's equity to pay for home repairs, college expenses or credit card consolidation, you'll have to contact a local lender to see if your home has retained enough value despite the economic downturn.

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