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Mortgage Information
Add-On or Upgrade?
by
Steve McBride
877-253-1981
smcbride@coastcities.net
With home values soaring and interest rates at record lows now is an excellent time to add-on to your existing home investment. According to research from Harvard's Joint Center for Housing Studies, remodeling projects returned an average of 86.4% of their value in 2003. Plus, many American homeowners are currently swimming in equity which translates into 2nds having lower Combined Loan-to-Values (CLTVs) than normal.
What does this mean to you??
Having a low CLTV means you can take advantage of the lowest of low interest rates. A borrower with above average credit and a low CLTV can get a Home Equity Line of Credit (HELOC) near or at the prime interest rate. A HELOC has quickly become the most popular way to take money out of your home. The advantage of this type of 2nd loan versus and traditional installation Home Equity Loan is that once you start paying back the money you borrow you have the option of re-borrowing that money without having to take out a new loan. This feature is ideal when adding on to your home in case you fall short on money at any point. It also has a safety mechanism where after 5 to 10 years you can no longer borrow or "draw" money so you do not stay in debt. One final advantage is it gives you the option of making interest only payments in case you are tight for money in any given month.
Upgrading in today's market is not out of the question, I would just caution that home prices are at all time highs. You may have made a pretty penny on your place, but just remember so has the person with the bigger home that you may be interested in buying. All home prices are relative to the current market.
In the future if interest rates rise a bit the housing market may cool off a bit as well. If you added-on then you still get to enjoy a great interest rate because you had a great deal of equity when you took out the loan. If you upgraded depending on where you live and how hot the current market is you might get stuck paying a big payment with declining home values and rising interest rates that make it difficult to refinance or take out equity.
Steve McBride is a Senior Loan Officer at Security Pacific Financial and focuses on jumbo first mortgages and 2nd loans. For information regarding him and the mortgage products he caters to please visit his personal web site at http://www.danon.us. There you will find existing special offers as well as historical information and guides to interest rates and programs.
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