Home Equity Loan

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Have you considered using the equity in your home to pay off some of your debt, complete home improvements, cover emergency expenses, or continue your education? Now might be the right time to take a closer look! What exactly is a home equity loan? A home equity loan is a type of second mortgage that allows you to borrow the difference between what your home is worth and what you owe on your mortgage.

For example, if you have a home value of $300,000 and owe $200,000 on your mortgage, then your home equity equals $100,000. This is the amount you would be able to borrow as a lump sum with a fixed rate. Just to clarify, you would pay back the loan in fixed monthly payments over a set period of time. Keep in mind there are a few risks associated with home equity loans. Not only should you take into consideration your debt load and the current interest rates, but more importantly your home is collateral for the loan. 

Contact Us Today! 

Is a home equity loan right for you? Contact us today to find out more about home equity loans, as well as other ways to use debt to your advantage.

Free Tools For You! 

We also have free tools available! Download our Cash Out Refi vs Home Equity Loan Calculator to see which option is best for you! 

Learn more!

Visit our YouTube channel to learn more about using debt instead of letting debt use you! 

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How to Calculate a HELOC Payment

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Today we are going to not only discuss what a HELOC is but we will also walk through the process of how to calculate a HELOC payment. Let’s get started.

What is a HELOC?

First and foremost, what is a HELOC? A HELOC is a mortgage on your house. However, it operates like a credit card. Just like credit cards, a HELOC allows you to borrow money and then pay it back. Just to clarify, you can borrow money for anything that you need during the draw period. On average, the draw period lasts between 5 to 10 years. Once the draw period ends, the repayment period begins.

How do you calculate payments?

First: What’s your starting balance?

Second: What’s your interest rate?

Third: Grab a calculator

Fourth: Calculate your annual payment. (Balance x Interest Rate)

Final: Calculate your monthly payment (Annual payment/12 months)

Let’s look at an example.

Starting Balance: $50,000

Interest Rate: 8%

Annual payment: $50,000 x .08 = $4,000

Monthly payment: $4,000/12 = $333.33

We are here to help! 

Here at Smart With Debt we want to help you get on the right path. Download our HELOC Payment Calculator for free today! Do you have more questions regarding a HELOC and determining if it is right for you? Contact us today! Learn more about how to calculate a HELOC payment in our most recent video.

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3 Things to Think About BEFORE You Get a Cash Out Refi

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A cash-out refinance can be a powerful tool to manage your finances. However, it’s important to make smart decisions before diving in. Let’s break it down into 3 things to think about before you get a cash out refi. This will not only protect your future, but it will also help you  get the best deal.

1. Get the Relief You Need, Not What They Offer

When you’re looking to refinance, make sure you’re getting the relief that you actually need. Sometimes, lenders might push you toward a higher amount or different options that don’t match your goals. If you’re aiming for a specific payment reduction, then focus on getting that number. Do not just focus on what the mortgage person suggests.

Example: Imagine you have a credit card balance that’s eating up $400 a month, and your goal is to free up that cash. Don’t let a lender talk you into taking on more debt than you need. Stick to your goal to reduce your payment without adding unnecessary costs to your future.

2. Don’t Pile On Debt That Hurts Your Future

It’s easy to get caught up in lowering payments today, but be careful not to add a mountain of debt to your future. Taking on too much debt can create stress and financial pressure down the road, affecting your well-being and your family’s peace of mind.

Example: If you currently have a great rate on your mortgage—like 3%—and you’re considering refinancing to a new rate of 6%, think twice. That’s doubling your cost of borrowing, which could mean a lot more interest over the life of the loan. Protect your future by not trading low-cost debt for high-cost debt.

3. Explore All Your Options

Before jumping into a cash-out refinance, look at other options. You might find that a home equity loan or a 0% credit card can meet your needs without adding so much long-term debt. These alternatives can give you the breathing room you need without putting your financial future at risk.

Example: A recent situation showed that a family considering a $290,000 cash-out refinance ended up adding over $230,000 in extra interest over time. Instead, they chose a home equity loan that kept their payments low and didn’t pile on that extra interest burden. They protected their finances and avoided unnecessary debt.

Protect Your Finances and Future

Remember, a cash-out refinance is just one of many tools available. Make sure you’re getting the best solution for your situation, not just the one that seems easy. Taking a little extra time to explore your options can help you avoid costly mistakes and keep your financial health on track.

For more guidance on cash-out refinances or to explore other financial tools, check out our Loan Cost Optimizer. We’re here to help you find the best debt solution for your goals.

Contact us today and watch our most recent video to find out more about the 3 things to think about before you get a cash out refi.

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Cash-Out Refinance: Avoid the $250,000 Blunder Most People Make

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Are you thinking about a cash-out refinance? While it might seem like a great idea to free up some cash each month, it creates further financial strain in the future. Therefore, before you jump in, let’s look at the numbers in order to see how this decision could cost you a whopping $250,000 over time. Let’s begin by looking at the average debt provided by Dave Ramsey. 

What is a Cash-Out Refinance?

To clarify, a cash-out refinance allows you to take out a new mortgage for more than you currently owe, as well as pocket the difference. It’s tempting if you’re looking for some extra cash or want to consolidate debt. However, in today’s market, with interest rates climbing, you might be setting yourself up for a costly surprise.

Cash-Out Refinance
New Loan Interest Rate Monthly Payment New Total (Current Payment $2,669 – Cash-Out Refinance $1,962)
New Mortgage Balance $295,000 7% $1,962 $707 (Monthly Relief)

Cost of Cash-Out Refinance
Monthly Payment Remaining Number of Payments Cost Over Loan Life Additional Money Out of Your Pocket!

 (Refinance Cost $706,550 – Total Cost Previously $454,591 
$1,962 360 $706,550 $251,959

What is a Home Equity Loan?

A Home Equity Loan, on the other hand, is a type of loan where you borrow against the equity you’ve built up in your home. To put it another way, it’s a second mortgage with a fixed interest rate, a set repayment term, as well as consistent monthly payments. Unlike a HELOC, which acts like a credit line, a Home Equity Loan gives you a lump sum upfront that you repay over time. Therefore, it is a stable option for consolidating debt or financing big expenses.

Home Equity Loan
New Loan Interest Rate Home Equity Loan Payment  + Mortgage New Total (Current Payments $2,669 – Mortgage with HEL $1,959)

(Credit cards and auto loan paid off)
Home Equity Loan  $57,500 9% $793 + $1,166 = $1,959 $710 (Monthly Relief)

Cost of Home Equity Loan
Monthly Payment Remaining Number of Payments Cost Over Loan Life + Mortgage Additional Money Out of Your Pocket!

(Home Equity Loan Cost  $461,249 – Total Cost Previously $454,591 
$793 105 $83,287 + $377,962 =

$461,249

 $6,658

Monthly Payment Relief: What Does It Really Cost?

Sure, both options give you that monthly payment relief you’re looking for, however, only one of them doesn’t mortgage your future. Therefore, by choosing the home equity loan over the cash-out refinance, you will not only save big now, but in the long run as well. 

Out of Pocket Difference Between the Two Options 
Cash Out Refinance $706,550 $245,301
Home Equity Loan $461,249

Bonus: Short-Term Impact

Some people say they won’t keep their mortgage for 30 years. However, the financial impact of a cash-out refinance can be seen after just one year! 

BONUS: Cash Out Refinance: Cost By Year 
Year Cost 
First Year $12,975
Third Year $26,987
Fifth Year $42,894
Tenth Year $80,679 + $11,898 = $92,577

Your Best Option in Today’s Market

In today’s market, a home equity loan is often the better choice. It not only provides the monthly relief you need, but it also doesn’t cost you a fortune in the long run. Remember, it’s not just about getting by today, it’s about protecting your future, too. 

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Do You Know How to Calculate Your HELOC Payment?

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Do You Know How to Calculate Your HELOC Payment?

Thinking about adding a Home Equity Line of Credit (HELOC) to your financial toolkit but unsure about the payments? You’re not alone. Many people want to know what to expect before they sign on the dotted line. In this guide, we’ll break down a simple way to calculate your HELOC payment using real examples. Let’s get started!

Understanding HELOC

What is a HELOC? A Home Equity Line of Credit (HELOC) is like a mortgage on your house, however, it works more like a credit card. You get a starting balance that you can borrow against, and during the draw period, you can borrow and pay back as much as you like. To clarify, this draw period usually lasts 5 to 10 years.

Example Scenario

Let’s look at an example to see how it works.

Someone wants to move $20,000 of debt to their HELOC because they have credit cards with higher interest rates. They want to know what their payments will be after the first month.

Step-by-Step Calculation of your HELOC Payment

  1. HELOC amount: $20,000
  2. Interest Rate: Most HELOCs start at Prime. For this example, let’s use an 8.5% interest rate.

Calculating the Interest

  • Yearly Interest:
    • $20,000 × 8.5% = $1,700 per year.
  • Monthly Interest:
    • $1,700 ÷ 12 = $141.67 per month.

So, the rough monthly payment is about $140. Remember, this is just an estimate. The actual amount can vary slightly each month since interest on a HELOC is calculated daily.

Comparing HELOC Payments to Credit Card Payments

In this case, the person was paying about $600 a month in credit card payments. Of that, $400 was just the interest. By moving everything to a HELOC, they now pay around $140 in interest. This change saves them about $260 per month.

Conclusion

Calculating your HELOC payment can help you understand your financial options better. If you have questions or need more examples, feel free to ask in the comments. We’re here to help!

Download the HELOC Payment Calculator here! 

For more tips and tools, check out our other videos and resources. And remember, the goal is to use debt wisely so it doesn’t use you.

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