Which Loan Option is Right For You?

Reader needs cash and is looking for the right loan option

Q: I’m considering allowing an investment company to invest in my home so that I can receive a personal loan. I took out a mortgage approximately 18 years ago. The original company went out of business. Over the years, my mortgage has been transferred to several different mortgage companies because they were bought out by a larger bank. I’m still living in the home.

Financing Your Forever Home

Some years ago I was considering foreclosure due to financial difficulties. However, the foreclosure wasn’t approved because I was current on my payments. How do I go about getting a mortgage release that the investing company is requesting?

I called all previous mortgage companies that are still in business where my mortgage was transferred. None of them had a mortgage release form in their records. I even checked at my local county clerk’s office.

A: We think there might be a different way to solve your problem. While you’ve had a mortgage on your home for the last 18 years, it appears you haven’t paid off the balance of the loan. The lender can’t release the lien on the home until your debt has been paid in full.

Unpaid Home Loan: Sibling Wants Her Fair Share

It’s unclear from your letter what you intend to do with a personal loan. Regardless, if you need cash, there are other types of loans as well as other financial products you might consider.

The first option is a cash-out refinance. If you have equity that’s built up in your home over the past 18 years, and you have the income to support a new loan, you might be able to take out some of the cash that way. You might also think about a home equity loan (often called a second mortgage) or a home equity line of credit (HELOC).

When you go to a bank, credit union or mortgage company, they should be able to offer you a variety of loan products that would give you the right to borrow, repay and reborrow money based on how much equity you have in your home.

Paying Mortgage But Not on Deed

Equity is the difference between what you owe your lender and what your home is worth. It has nothing to do with how much you paid for your home. For example, let’s say you owe $100,000 and your home is worth $400,000. In this example, you’d have $300,000 in equity in the home. Given that you’ve lived in your home for 18 years, and the dramatic appreciation of home values across most of the United States since the pandemic 5 years, we suspect you have quite a bit of equity in your home.

Here’s how home equity loans work: When you have a substantial amount of equity in your home, and want to borrow more money, the lender will simply allow you to take out a home equity loan, also known as a second mortgage, on the home. Once you sign the paperwork, the cash gets deposited into your account and you begin paying interest.

Refinancing a HELOC Loan After a Divorce

A HELOC extends a line of credit based on your equity. When you need to tap into your equity, you use your HELOC. At that point, you begin paying interest on the money you borrow. If you never need your HELOC, then you don’t pay any interest.

With a cash-out refinance, you pay off the existing balance with a new loan that’s for a larger amount than what you owe. The excess funds are deposited into your bank account.

Today, mortgage interest rates are around 7 percent for people who have excellent credit scores. HELOCs and home equity loans are about one percent higher, or 8 percent, on average. If your credit score is lower, you’ll pay a higher interest rate on all loan products.

HELOC: Keep It Active To Stop Termination

Whatever type of financing you’re looking for, you should talk to several different financial institutions, including a local savings and loan, a national bank, a mortgage lender and a credit union to see what products they have available to suit your needs. You might also look at some online mortgage companies to compare offerings. A website like Bankrate or GoBankingRates.com can help you compare interest rates and fees.

Before you sign papers, make sure you understand what product you’re buying – because that’s what you’re doing when you take out a loan.

Read more about home equity loans and HELOCs

Home Equity Line Of Credit Counts As Second Mortgage

Unpaid Home Loans: Sibling Wants Her Fair Share

Retiree Co-Signing Mortgage: Reader Offers Suggestions

Refinance Adds Years To Mortgage

Paying Off Mortgage: House in Trust

 

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