If you feel too constrained from your current home equity loan payment plan, it’s time to reconsider your opportunities.
Let’s see the four ways your current home equity loan is constraining you:
1) You have constraints on payments.
Simply you have to pay the due amount depending on your current debt and the interest rate you are sustaining.
2) You can have significant cashflow fluctuations when during the year you have to sustain recurring and expected big yearly expenses.
This gives some problems in the cashflow of the period and money shortage.
3) You have big cashflow fluctuations due to yearly big expenses (e.g. summer vacations).
Similar to the previous one but it’s much larger in size. When this happens, and you already know when it will, simply you need an extra-ordinary management effort of your finances.
4) Oh, of course it’s possible you are paying very high interest rates and simply you’d like better loan terms. But of course your current terms are tying you to your current payment.
The two steps to a better way
1) Find a type of home equity loan that gives you more and allows you to overcome these problems.
2) Refinance your current home equity loan with the new one.
Well, if you suffer from “loan payment flexibility syndrome” you are lucky. In fact there are currently equity loans which are designed to help you. They are the “Flexible Home Equity Loans”.
These are Equity Loans that allow you to overpay instalments to reduce debt (so interests), underpay instalments when you are short of money (if you have overpaid before) and to skip a payment in the year if your previous overpayments have given you enough margin.
How are we going to substitute our current loan with a new one? Well, refinancing it, i.e. asking for a new loan that with new terms that will pay the previous one. So it’s a way to replace the old loan with a newer one, based on new contractual terms. It’s important to leverage the new terms for three different points:
1) contractual flexibility (what you are searching);
2) interest rate paid (for fixed rate mortgages) or spread paid (for base tracker equity mortgages);
3) lower costs.
So, what are the 5 steps that allow us to do this?
1) Ask your current lender
Ask if they provide flexibile loans and what can be done if you need more flexibility.
2) Research the market
As you can see, searching the marketplace is essential when considering loans, since flexible loans, equity loans, and other loans change in rates. Check for lenders in internet and track their offers.
3) Exploit market offer
As home equity loans and re-mortgaging loans are common, there are a variety of loans to select–and most have their own variations. Understand market offer and what is making them different.
4) Exploit market competition
Mortgage companies are competing against each, other offering some of the best rates on the market. Exploit this market competition to get lower interest rates and close-to-zero loan expenses.
5) Close the deal
First, ask your company for a refinancing. Use what you have gathered in the previous steps (i.e. what your lender’s competitors are eager to do with you to gain a new customer) to ease your negotiation.
If your company is deaf, ask another company to give better terms and use the new money to close the previous debt with the old lender. Pay attention to the closing costs of the previous contract (there are usually penalties related to anticipated extinction).
So, we have a new contract. Then?
1) Exploit overpayments to reduce interest paid
As flexible rate equity loans offer you the ability to overpay your mortgage, do it as soon and as often as you can.
In fact overpayments will reduce the debt, so you are going to pay fewer interests independently of what is happening to interest rates.
2) Exploit underpayments
If you have overpaid “enough” (depending on the contract you have signed), then you can also “underpay” toward mortgage, providing you have made the minimum required amount and number of payments.
3) Exploit holiday package
As these loans also provide “holiday packages” for underpayments, go for it! So if you pay enough overpayments, you can stop payments for a month to take a vacation. This will lessen the biggest cashflow problem we spoke about.
The flexible rate equity loans are for sure a method to leverage your resources to improve your equity loan. If you feel your equity loans is a too big constraint, give a look to this option.