Use Mortgage Calculators to Research Your Home Equity Loan Options

By Karen Lawson
Calculators for Mortgages Columnist

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Emergency expenses. Home improvement. Education costs. Home equity financing can help you fund these and other expenses. Using mortgage calculator tools can help you evaluate home equity loan options.

Falling property values and tighter credit restrictions may have put an end to tapping home equity for every imaginable purpose, but there may be times when converting home equity to cash makes sound financial sense. You can use mortgage calculator tools for evaluating home equity loans, comparing mortgage interest rates, and estimating loan costs. Here are options for accessing your home equity:

Understanding Home Equity Loan Options

There are three ways to borrow against your home equity; which option you choose depends on individual needs and circumstances.

• Home equity loan: This home loan may also be called a second mortgage; it delivers a lump sum at closing, involves scheduled installment payments and a specific repayment term. This low-cost option usually comes with a fixed interest rate and can be a good choice if you need a larger amount of money for things like debt consolidation or medical bills.
• Home equity line of credit (HELOC): This home loan typically carries a variable interest rate, which can be riskier, but comes with few or no closing costs. A HELOC is a line of credit that can be used when or if needed. You only pay interest on amounts used. A HELOC can work well if you need ongoing access to funds, and want to "pay as you go." Remodeling your home or starting a small business? You can access your HELOC as needed for paying contractors, buying supplies, or meeting business expenses.
• Cash-out refinancing: This option provides funds for paying off your current mortgage and meeting additional expenses such as home improvement or consolidating credit card debt. Cash-out refinancing is more expensive, but may be worth it if the rate on a new loan would save you enough money to recoup the costs. You can estimate these expenses using a closing costs calculator. Depending on how much home equity you have, and the amount you wish to refinance, you may incur the additional expense of mortgage insurance. Taking out a home equity loan or line of credit instead of a mortgage refinance can help you avoid this expense. Compare your current mortgage with proposed mortgage rates and terms using a refinance calculator.

All types of home loan require a security interest in your home and can be foreclosed if you fail to make payments. Please consult a financial advisor for detailed information and advice concerning how home equity financing can meet your needs.

About the Author
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.