Question: I bought a house 5 years ago and just recently discovered that my roof is in > worse condition than I previously thought. I need to do some serious repairs > (New roof and wood repair) and frankly I just can’t afford it right now. > Someone suggested that I get a Home Equity loan of some sort but I don’t > know a lot about that kind of thing. I was hoping to get some advise about > where to look for information about the best way to go about it.
> I will appreciate any input. I will probably only need about $3-5000 but I > need it before the rainy season starts. Due to an injury I am out of savings > and just barely back on my feet. I cannot afford the payments of a regular > loan and would probably need to replace or modify my home loan….
Answer: A home equity loan is an appropriate sort of loan under your circumstances. With a home equity loan you buy against the “equity” you have in your house — ie, the current value of the house minus your current mortgage debt. Usually the rate is about the lowest you can get, and interest is usually tax-deductable. You must, however, have built up some home equity (generally five years would be enough) and the home must be in a neighborhood where values aren’t going downhill. Plus you must be able to make the payments. Payments on a $5000 five year loan would run (very) roughly $100/month, maybe a bit more. If you are very disciplined in your money management, you might consider getting a loan for $1000 or so larger than what you need and using the extra cash to make the loan payments until you get back to work. But you must have the discipline to not spend the cash elsewhere. Or you can use the extra cash to pay off high-interest credit card debt and make income normally used to pay on the credit cards to instead pay on the equity loan.
You can also refinance your existing loan, but if it’s only five years old it’s probably at a pretty good rate and refinancing wouldn’t gain you much interest-wise and might actually cost you. It might be difficult to get payments not much larger than what you have today.
The thing to do is to go to two or three different banks, S&Ls, or credit unions (take your mortgage papers with you), and have them work through the numbers for you. Make sure you get them to state all fees and expenses that will be involved in each loan.
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