How to Get Alternative Student Loans
Use a home equity loan to finance college costs., Access a home equity line of credit to finance college costs., Obtain a cash-out refinance of your original mortgage agreement., Pay attention to interest rates.
Step-by-Step Guide
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Step 1: Use a home equity loan to finance college costs.
A home equity loan is a type of second mortgage, subject to the same type of process as a first mortgage.
If you take out a home equity loan, you receive the money in one lump sum, and the length of the mortgage can be anywhere from 5-30 years.You can generally borrow anywhere from 50 to 60 percent of the equity in your home with a home equity loan.
Equity is the difference between current market value and existing first mortgage loan amount.
For example, if your house is worth $200,000 and you still owe $80,000 on your mortgage loan, your equity is $120,000.
Interest rates for home equity loans are usually fixed.
The rates can be attractive, because your home is used as collateral.Conversely, if you fall behind on your loan, you put your home at risk for foreclosure.
Since this is a second mortgage, you can expect to have another monthly payment to add in addition to your original mortgage. -
Step 2: Access a home equity line of credit to finance college costs.
A home equity line of credit, or HELOC, is another type of second mortgage.
Since it is a second mortgage, it will be subject to the same types of conditions as a first mortgage, and the application process will be similar.
The difference between a HELOC and a home equity loan is twofold:
HELOCs usually have variable interest rates, and the money isn’t given out as a lump sum, it’s a line of credit, like a credit card.HELOCs have a period of time for which you can access the funds, usually 10 years.
Typically, the loan has to be paid off in its entirety in 20 years.
As payments are made on the HELOC, the funds available to be borrowed is increased by the payment amount.For example, if the line of credit is $100, and the debtor uses $20, leaving $80 in the line of credit.
When the debtor makes $20 in payments, then the line of credit goes back up to $100. , A cash-out refinance is not a second mortgage, unlike a HELOC or home-equity loan.
A cash-out refinance is the replacement of the first mortgage by another mortgage loan, the difference between the amount loaned and the first mortgage amount paid off being cash to the home owner.The new mortgage is for a larger amount than the first mortgage, and the debtor receives the difference, hence the term “cash-out.”So if the original mortgage is for $100 and the debtor gets a cash-out refinance, the new mortgage might be for $150, allowing the debtor to pocket the $50.
Since the new mortgage replaces the old, there is only one monthly payment, in contrast to the second mortgage options.
Monthly payments may increase based upon the interest rate and term of the new mortgage versus the old mortgage. , With cash-out refinancing in particular, you can come out ahead or behind depending on what the current interest rates are.
Getting your hands on the funds might still be worth the higher monthly payment, but it’s something to pay close attention to. -
Step 3: Obtain a cash-out refinance of your original mortgage agreement.
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Step 4: Pay attention to interest rates.
Detailed Guide
A home equity loan is a type of second mortgage, subject to the same type of process as a first mortgage.
If you take out a home equity loan, you receive the money in one lump sum, and the length of the mortgage can be anywhere from 5-30 years.You can generally borrow anywhere from 50 to 60 percent of the equity in your home with a home equity loan.
Equity is the difference between current market value and existing first mortgage loan amount.
For example, if your house is worth $200,000 and you still owe $80,000 on your mortgage loan, your equity is $120,000.
Interest rates for home equity loans are usually fixed.
The rates can be attractive, because your home is used as collateral.Conversely, if you fall behind on your loan, you put your home at risk for foreclosure.
Since this is a second mortgage, you can expect to have another monthly payment to add in addition to your original mortgage.
A home equity line of credit, or HELOC, is another type of second mortgage.
Since it is a second mortgage, it will be subject to the same types of conditions as a first mortgage, and the application process will be similar.
The difference between a HELOC and a home equity loan is twofold:
HELOCs usually have variable interest rates, and the money isn’t given out as a lump sum, it’s a line of credit, like a credit card.HELOCs have a period of time for which you can access the funds, usually 10 years.
Typically, the loan has to be paid off in its entirety in 20 years.
As payments are made on the HELOC, the funds available to be borrowed is increased by the payment amount.For example, if the line of credit is $100, and the debtor uses $20, leaving $80 in the line of credit.
When the debtor makes $20 in payments, then the line of credit goes back up to $100. , A cash-out refinance is not a second mortgage, unlike a HELOC or home-equity loan.
A cash-out refinance is the replacement of the first mortgage by another mortgage loan, the difference between the amount loaned and the first mortgage amount paid off being cash to the home owner.The new mortgage is for a larger amount than the first mortgage, and the debtor receives the difference, hence the term “cash-out.”So if the original mortgage is for $100 and the debtor gets a cash-out refinance, the new mortgage might be for $150, allowing the debtor to pocket the $50.
Since the new mortgage replaces the old, there is only one monthly payment, in contrast to the second mortgage options.
Monthly payments may increase based upon the interest rate and term of the new mortgage versus the old mortgage. , With cash-out refinancing in particular, you can come out ahead or behind depending on what the current interest rates are.
Getting your hands on the funds might still be worth the higher monthly payment, but it’s something to pay close attention to.
About the Author
Gary Lewis
Enthusiastic about teaching creative arts techniques through clear, step-by-step guides.
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