 Dear
Dr. Don,
The appraised value on my home after renovations is more than my current mortgage. What are my options as far as the equity and/or refinancing?
-- Dana Denouement
 Dear
Dana,
You have the ability to tap the equity in your
home with a home equity loan, a home equity line
of credit or a cash-out refinancing of your first
mortgage. A key variable in the decision is what
you plan to do with the money. Bankrate has a
Home
equity calculator that can help you decide
between a home equity line and a loan.
One advantage of home equity lines
or loans is they have lower closing costs than
refinancing a first mortgage. The disadvantage
is at current market rates, the equity loans are
at higher interest rates.
Looking at the cash-out refinancing
option with your first mortgage, first decide
if it makes economic sense to refinance the existing
mortgage before looking at the cash-out decision.
Bankrate's, "Will
you save by refinancing your mortgage?"
will estimate how long you have to be in the house
to break even on the refinancing.
Keep in mind that if the loan-to-value
of a new first mortgage exceeds 80 percent of
the appraised value, you will wind up needing
private mortgage insurance on the new loan. The
Mortgage Professor's Web site also has a
calculator that compares the cash-out refinancing
option to using a home equity loan with the existing
first mortgage.
To ask a question of Dr. Don,
go to the "Ask
the Experts" page, and select one of
these topics: "financing a home," "saving
& investing" or "money."
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