Three Ways to Make the Most Out of Your Home Loan


Some people dream of being homeowners their whole lives. They want to have their own house with a backyard and a white picket fence. With a dog or two playfully chasing after their kids in the quiet afternoon while they sip their sweet tea and relax under the setting sun.

Loan agreements are useful since they spell out exactly what each party is committing to and what their roles are. The loan process is formalized with the use of a loan agreement form, which is a legally binding contract. It safeguards the lender’s interests by enforcing the borrower’s agreement to pay back the loan. It also makes it clear that the money exchanged is a loan rather than a gift.

Next to having a family and owning a car, homeownership comes at the top of the list of things people want to achieve when they reach a certain age. It’s almost like a rite of passage in adulthood; that’s why so many people are hell-bent on being a homeowner.

Another reason why homeownership is sought after is that it symbolizes financial stability. That’s because most, if not all, of the mortgages available today, come in a 15- or 30-year repayment plan, and an individual has to be financially stable to actually afford that. 

Being a homeowner is a feat in itself, but it can also be frightening to be tied to a plan that long, considering that a house won’t be the only expense most people have in their lives. So, it’s a good thing that mortgage plans aren’t set in stone. They can still be tweaked or altered.

If you thought that you won’t have any other choice but to stay with your current plan, that’s where you’re wrong. There are multiple ways to change your current mortgage plan without having to go through the entire gruesome process again. In fact, here are three ways you can do it:

Consider Refinancing

When you first made your mortgage plan, it could be that you weren’t aware of your other options which were why you stuck by your current terms, even if you know you could’ve had better. Or it could be that you’ve managed to maintain a better credit score over time.

No matter the reason you have, you can consider mortgage refinancing if you want to take advantage of more favorable terms. This could give you the chance to lower your monthly mortgage payments and interest rates, or you could shorten the duration of the entire plan.

Refinancing can also be a practical option if your current plan is under an adjustable interest rate because you can convert it to one that uses a fixed interest rate or vice versa, depending on what you want to achieve. Of course, you will have to be re-evaluated, but you can enjoy the new and more favorable terms of your refinance once you get approved.

Take a Second Mortgage

Being tied to a mortgage plan that lasts for three decades at most can be overwhelming, especially because you won’t be able to do much else. So, if you were to consider opening a business or buying a car, you would have to apply for another loan, which can bring you into debt. 

Fortunately, that’s where the homeowner’s benefit comes in. You see, every time you make your monthly mortgage payments, you increase the amount of equity you have in your home. Equity refers to the actual portion of your home’s current value that you own at any given time.

This means that the more payments you make, the higher your equity becomes. The home’s equity is often an untapped source of money that not many homeowners are aware of. Having equity in your home can allow you to take a home equity loan, which is otherwise known as a second mortgage.

The home equity loan will allow you to borrow against your home’s equity because it uses it as collateral. This lump-sum loan can be used for home renovations, seed money for your business, debt consolidation, and basically, anything else as long as it’s not to buy another property.

Open a Line of Credit

On the other hand, if you prefer having a revolving credit line instead of having your money in one lump sum, what you can do is open a home equity line of credit (HELOC). The HELOC is another form of the home equity loan, which can also be likened to that of credit cards.

With a HELOC, you can borrow money against your equity as you please for a determined period. Usually, the draw period when you can withdraw money will last from five to 10 years. Then, it’s followed by a repayment period that lasts for 10 to 20 years, but you will no longer be able to withdraw money during that time.

It’s important to note that HELOCs come with a variable interest rate unlike the home equity loan, but there are cases when lenders can offer a fixed rate. If you want to save yourself a few bucks, consider finding a lender that will offer you a fixed-rate HELOC.

Being a homeowner shouldn’t come at the cost of your financial freedom, so make sure that the terms you agree on won’t hinder you from doing great things. And be very careful about the loans you’re taking on because that can be a slippery slope into inconceivable debt.