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If you feel too constrained by your current home equity loan payment plan, it’s time to reconsider your chances.
Let’s take a look at four ways your current home equity loan is holding you back:
1) You have a down payment.
All you need to do is pay the amount due based on your existing loan and the interest rate you are making.
2) You can have significant cash flow fluctuations when you have to maintain recurring and expected large annual expenses during the year.
This causes some problems with period cashflow and funding shortfalls.
3) You have large cash flow fluctuations due to large annual expenses (such as summer vacation).
Similar to the previous one but this one is much bigger in size. When it happens, and you already know when it will happen, all you need is an extraordinary management effort of your finances.
4) Oh, of course it’s possible that you’re paying too high an interest rate and simply want better loan terms. But of course your current terms are tying you to your current payment.
two steps better
1) Find a type of home equity loan that gives you more and allows you to overcome these problems.
2) Refinance your existing home equity loan with the new one.
Well, if you suffer from “debt payment flexibility syndrome,” you’re in luck. There are in fact now equity loans that are designed to assist you. They are “flexible home equity loans”.
These are equity loans that allow you to pay higher installments to reduce the loan (hence the interest), when you are short on money (if you previously overpaid) and to skip payments later in the year. If your past overpayments have given you sufficient margin.
How do we replace our current loan with the new loan? Well, refinancing it, ie seeking a new loan with new terms that will pay off the old one. So it is a way of replacing the old loan with a new loan based on the new contract terms. Taking advantage of the new terms is important for three distinct points:
1) Contractual Flexibility (what you are looking for);
2) the interest rate paid (for fixed rate mortgages) or the spread paid (for base tracker equity mortgages);
3) Low cost.
So, what are the 5 steps that allow us to do this?
1) Ask your current lender
Ask if they offer flexible loans and what can be done if you need more flexibility.
2) Research the market
As you can see, researching the market is essential when considering loans, as flexible loans, equity loans, and other loans have changing rates. Check for lenders in the internet and track their offers.
3) Take advantage of what the market has to offer
As home equity loans and mortgage loans are common, there are a variety of loan types to choose from – and most have their own variations. Understand the market offerings and what is making them different.
4) Take advantage of market competition
Mortgage companies are competing against each other, with others offering some of the best rates on the market. Take advantage of this market competition to get low interest rates and near-zero loan costs.
5) Close the deal
First, ask your company for refinancing. Use what you’ve gathered in the previous steps (i.e. what your lender’s competitors are eager to do with you to gain a new customer) to facilitate your negotiation.
If your company is insolvent, ask another company to offer you better terms and use the new money to pay off previous debt with the old lender. Note the closing costs of the previous contract (there are usually penalties related to anticipated lapses).
Now, action
So, we have a new contract. Then?
1) Take advantage of overpayments to reduce the interest paid
Since flexible rate equity loans give you the ability to make higher payments to your mortgage, do it as soon and as often as you can.
Paying more will actually reduce the debt, so you’re going to pay less interest regardless of what’s happening with interest rates.
2) Take advantage of underpayment
If you have “enough” overpaid (based on the contract you signed), you can also “underpay” toward the mortgage, provided you have made the minimum required amount and number of payments.
3) Take advantage of holiday packages
Since these loans also offer “vacation packages” for lower down payments, go for it! So if you get paid enough, you can stop paying for a month to take a vacation. This will alleviate the biggest cashflow problem we talked about.
Finally…
Flexible rate equity loans are certainly one way to take advantage of your resources to improve your equity loan. If you think your equity loan is too much of a hindrance, take a look at this option.
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