Shopping For Your Home Loan: Hud'S Settlement Cost Booklet - U.s. Department Of Housing And Urban Development (Hud) Page 32
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48A closed-end home equity loan is for a fixed amount of money that you receive
at closing. You will not be able to borrow additional money under the terms of this
type of loan. An open-end home equity loan has a credit line set by the lender. With
this loan you can choose when and how often to borrow money up to your credit limit.
Is a Home Equity Loan/Line of Credit Right For You?
You may want to make home improvements to increase the value of your
home, or you may decide to consolidate your debts by paying off high-interest credit
cards.
Maybe you have unexpected medical bills or need funds to pay for school
expenses.
A home equity loan can be a convenient way to get money for these
situations; however, before you get a home equity loan, there are things that you
should carefully consider. Remember that a home equity loan creates another lien
against your home and reduces the equity that you have built up. You could risk
losing your home if you do not plan wisely.
Ask as many questions as you asked when you were looking for your
home loan. The decision to get a home equity loan or line of credit should be made
wisely. Make sure you can afford the loan. Have a solid financial plan and set up a
budget, so you can be confident that you can make the additional monthly payment
while still meeting your other financial obligations.
You worked hard to get your
home, don’t risk losing it!
Additional assistance and guidance can be found in “What you should know
about Home Equity Lines of Credit” published by the Federal Reserve Board. You can
contact the Federal Reserve Board at the address and phone number provided in the
Appendix at the end of this booklet for additional information.
Refinancing: Should You Consider Refinancing?
Refinancing is paying off one loan by obtaining another and is usually done to
secure better loan terms such as a lower interest rate.
You might also want to
refinance for the same reasons you may have considered a home equity loan or line
of credit - to get cash from the equity that you have built up in your home for such
things as home improvements, paying off other debts, major purchases, starting a
business, or education costs, etc.
You should carefully consider the terms of a refinance as well as the long-term
impact on your financial situation. You should shop as carefully for your refinance
loan as you did when you bought your home. Refinancing can deplete the equity you
have built up if you take out the equity in your home in cash, and it can negatively
affect your ability to pay your loan if you do not closely review the terms of your new
loan. Consider the same issues that you addressed when you first applied for your
home loan that have been discussed throughout this booklet.
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