Mortgages are a way to buy a home without having all the cash upfront. In addition to bank financing, the same mortgages can also be taken out with “non-bank lenders” like home equity loans. Home equity loans allow you to make monthly payments on a home while receiving monthly property taxes, insurance, and other monthly mortgage payments.
You can use a home equity loan to:
- Pay down your mortgage (mortgages make up more than half of your debt)
- Pay for the mortgage down-payment and to fund other home purchases
The fees you pay depend on:
- How much of the equity you have in your home
- The terms of the mortgage you use
- The state you live in
The size of your down payment
Your mortgage lender can collect fees as part of the loan, or it can take fees as compensation for the taxes and insurance required. (More about homeowner’s insurance below.) You might pay fees directly to your lender, or in some states, you might need to make a payment to the state to get this additional protection.
Generally, mortgage loan interest rates are the same whether you have a mortgage or not. For example, an interest rate of 10% per year on a $300,000 loan is $3,625 annually. This means that it costs $285.25 to borrow the $300,000 at 10% interest. Of course, the loan terms may change, and the mortgage may be refinanced, so look at your monthly payment, number of payments per month, and other factors before you make a final decision about a mortgage loan.
If you plan to refinance your mortgage, you may need to make a monthly payment to qualify. That can include interest on your principal amount.
To lower your monthly mortgage payment, you can:
- Take out a fixed rate loan
- Replace a variable rate mortgage with a fixed rate loan
- Opt to refinance mortgage
Refinancing a mortgage will require more upfront costs than it will save you in the long run. In many cases, it’s a good idea to repay your debt sooner rather than later. But if you decide to refinance, or if your existing mortgage is refinancing, you might want to consider bankruptcy.
You can declare bankruptcy if your income or expenses have decreased to the point where you can no longer afford your mortgage payments. In that case, the bankruptcy trustee can help you make payments or help you with the cost of your home, so you won’t be penalized by the bankruptcy court for delaying your payments.
There is a certain length of time that must pass before you can file for bankruptcy, and the waiting period depends on your state. It may take anywhere from one year to five years, depending on how much you make each month and how much debt you owe. (If you’re eligible to use Chapter 7 bankruptcy, the waiting period for that will be 10 years or 12 years.)