There are several options for accessing the equity in your home for a large lump sum of cash. Two of the more common options are refinancing your mortgage or taking out a home equity loan. Both solutions can help you use your home’s equity for debt consolidation, financing education, home improvement, and almost anything else. There is no single right answer as to which option is best for your situation. The first step is understanding the major differences between these options and the pros and cons of each.
What is a Refinance?
Refinancing a mortgage involves taking out a new home loan to replace the existing one, usually with more favorable terms such as a lower interest rate or a shorter term. There are two popular types of refinances:
Why Choose a Cash-Out Refi?
- Standard refinance. With a standard refinance, also known as a rate-and-term refinance, the only terms that change with the new loan are the mortgage interest rate, the term of the loan, or both. For example, you may refinance a 30-year mortgage into a 15-year loan and/or get the rate reduced from 6% to 4%. Because you do not walk away with cash, you may be able to finance closing costs into the new balance.
- Cash-out refinance. A cash-out refinance is the option that allows you to access your home equity. With this loan solution, you may get a new loan term or a lower interest rate, but the defining feature is the amount you are borrowing increases. As you only owe the original amount still outstanding on your mortgage and closing costs, you can borrow more money against the equity in your home. For example, if you owe $100,000 on your existing loan and your home is now worth $210,000, you can refinance into a new loan at $210,000 and cash out the $110,000 in equity.
A cash-out refinance offers several benefits, especially when compared with a home equity loan:
- A cash-out refinance gives you a single monthly payment.
- The interest rate on a first mortgage (refinance) is usually lower than with a home equity loan
- If interest rates are lower than you are paying now, you can access your equity and lock into a lower rate
There are some drawbacks to this solution, however. The closing costs on a refinance are usually higher than with a home equity loan. Refinancing your mortgage can also cause you to “reset” your loan, which means the term starts over, unless you refinance into a loan with a lower term. For example, if you have 13 years remaining on a 30-year mortgage and refinance into a new 30-year mortgage, your loan now has 30 years left. There is also the potential that you will be unable to refinance into a lower rate. If mortgage rates have gone up since you got your current loan, you may need to lock into a much higher mortgage payment.
What is a Home Equity Loan?
A home equity loan is also known as a second mortgage. With this solution, you can borrow against the equity in your home and receive a lump sum of money that is paid back in fixed monthly installments for a period of time, usually 10 or 15 years. The payment on your home equity loan will be separate from your primary mortgage and it may or may not be from the same lender. As with a cash-out refinance, a home equity loan usually has a fixed interest rate for predictable payments.
Why Choose a Home Equity Loan?
There are several benefits to a home equity loan over a cash-out refinance:
- Closing costs tend to be lower with home equity loans than refinance loans
- You may be unable to get a lower interest rate or better terms on your primary mortgage. In this case, it may make more sense to finance the smaller loan amount (to access equity) with a second mortgage. Taking out a home equity loan of $50,000 at 6% while paying a primary mortgage of $200,000 at 3.75% is more cost-effective than refinancing $250,000 at 6%, as an example.
Despite these pros, remember that a home equity loan is likely to have a higher interest rate than a refinance loan. Don’t assume that borrowing the money on a second loan will protect against foreclosure, either; second mortgage lenders can also foreclose on the home if you default on payments down the road.
While most homeowners insurance policies offer liability coverage to dog owners that covers dog bites and other dog-related claims, most insurance companies also exclude coverage for specific dog breeds or dogs that have been deemed dangerous, potentially dangerous, or a public nuisance.
According to the Insurance Information Institute’s Dog Bite Liability report, over one-third of homeowners insurance liability claims are related to dog bites, which cost more than $400 million per year with an average claim amount of $22,000.
Fortunately, dog owners have several solutions to obtain adequate coverage for their pet.
What is Considered a Dangerous Dog Breed?
Insurance companies often rely on the average number of bites by dog breed to determine if a dog is “insurable.” While the definition varies by insurance company, the most common dog breeds that appear on blacklisted or dangerous breed lists include:
- Pit Bulls and Staffordshire Terriers
- Rottweilers (* Pit Bulls and Rottweilers together account for 60% of fatal dog attacks)
- Doberman Pinschers
- Alaskan Malamutes
- Great Danes
- German Shepherds
- Siberian Huskies
- Wolf hybrids
Many insurance companies also exclude liability coverage for dogs that have been deemed a public nuisance, dangerous, vicious, or potentially dangerous. Sometimes additional requirements are necessary to write a policy, such as behavioral training or muzzling.
Some states, such as Pennsylvania and Michigan, outlaw breed profiling, but most states allow insurance companies to blacklist owners of so-called dangerous dog breeds. Without coverage, dog owners are held liable for any lawsuits or bills if the dog bites someone, depending on the state dog bite laws.
Typical Homeowners Insurance Exclusions for Dog Bites
Homeowners insurance policies usually offer coverage for dog bites, including legal liability the owner incurs due to negligence. A standard policy may offer hundreds of thousands in liability coverage.
There are dog-related exclusions to a standard homeowners policy. Along with excluding coverage for dangerous dog breeds, many insurance companies have their own one-bite rule which means the insurance company will only pay for the first occurrence then cancel the policy or add a dog exclusion for any subsequent dog bites.
Most policies also require the insurance company be notified of major changes in circumstances. If the homeowner’s dog bites someone or is declared a dangerous dog under local law and the insurance company is not notified, the policy is likely to cover any subsequent dog-related claims.
Umbrella Liability Insurance Policy
One common solution for obtaining liability coverage for a dangerous dog breed is purchasing a personal umbrella liability policy. This type of insurance offers coverage for any excess liability over your underlying liability coverage (such as through your homeowners insurance policy). With this option, it’s important to be sure the policy does not exclude dog-inflicted injuries.
Canine Liability Insurance
A canine liability policy is written specifically for dog owners to insure dogs and owners who cannot obtain coverage otherwise for any dog-related injuries and damages. Sometimes known as dog owner liability insurance, a select number of insurance companies and brokers offer these specialized policies.
A separate liability insurance policy for your dog may be the only solution if:
- The dog has bitten or attacked someone,
- The dog has been declared dangerous under local law, which requires proof of liability coverage, or
- Local laws require owners of specific breeds carry liability insurance.
Getting adequate insurance for your canine, even if it is a blacklisted breed or has been declared dangerous, is not impossible, nor does it need to be expensive. Specialized dog owner insurance policies can offer the coverage you need to protect your pet and home.
Switching your wireless carrier may seem tempting, but you should think twice before you do it. One reason is that the grass isn’t always greener from one carrier to the next. Another reason is that you can most likely find a resolution for any problem that you may have. The following are some of the most common problems that consumers have with their wireless carriers and some alternative solutions that they use to resolve those issues. You may be able to use one or several of these tactics with your carrier:
Bad Reception or Data Quality
Call quality is the most important feature of having cell phone service. Data quality is important too because some customers use their mobile phones to connect their computers to the Internet and complete work tasks. If you are having a problem with reception, you can try a number of solutions before you throw in the towel. The first step is calling customer service and finding out if you live in an area that is a work-in-progress. The company may be working on the towers where you live, and that may be causing the problem. You may also want to speak with the phone techs who can lead you through an examination process to ensure that you don’t just have a malfunctioning phone. The solution for a malfunctioning phone problem could be a free replacement if you are under a warranty. The company may be willing to adjust your pricing if they are working on the towers in your area, and that is causing the problem. If not, they may be able to provide you with a signal enhancement device. Switching to an unknown carrier is not the best solution because that carrier may have some of the same issues that the one you left had.
Pricing Issues and Better Deals
Another common reason that people leave their mobile phone carriers is that they see a better deal ahead. Many consumers have broken up with their carriers because of competition bribery. Such people may have already been unhappy with an aspect of the pricing or some other aspect of the service. If you are unhappy with the pricing, you may want to contact your carrier’s customer service team and forge your complaint. You may find that the carrier has some plans in its back pocket that it doesn’t advertise to the masses, or you may find that the retention team is willing to provide you with an incentive to keep you from leaving.
Poor Customer Service or Uncomprehensible Agents
One of the most frustrating feelings in the world is to contact customer service and have to speak to a computer or someone that you do not understand. Resolving issues as quickly as possible is important to all customers, and such cannot be done if the customers can’t communicate with a service team. This issue may take a while to resolve, but you can still try to do so by speaking to someone about your concerns. If your provider allows consumers to send their suggestion in, then you may want to take the time to send yours.
Poor Phone Selection or New Phone
Maybe a new phone came out and your provider doesn’t carry it. Perhaps you just feel as though your carrier has a generally poor selection. What you can do is speak to a sales specialist about your needs and desires when it comes to cell phones. The salesperson may be able to find something that the company does offer that matches your needs. The salesperson may even introduce a model to you that you never thought would interest you.
Weak Features or Lack of Desired Features
Features are another reason that some people leave their carriers. Examples of desirable features that may cause a person to leave one carrier for another are mobile hotspot, international text messaging, music and more. The features may be so important to a person that the person is willing to switch carriers. You could speak to someone if you feel that way about some features. Perhaps your carrier will incorporate those features soon.
Don’t ever just quit with one carrier without trying to resolve the situation. Your carrier most likely does appreciate your business and may be willing to compromise with you to retain it.
Myths, facts, and your finances see to go hand-in-hand in many instances. With so many consumers drowning in credit card debt, the idea of debt consolidation seems great. It’s a way to keep your debts together in one payment while eliminating numerous interest rates and higher payments. You’ll have a smaller monthly payment, less money goes toward interest so you can pay off your debts faster, and you’re going to see a lot of improvement in a lot less time. The only problem with this is it’s not always the case. Debt consolidation isn’t always the best idea, and it’s not always what it seems. It’s time to get to know what debt consolidation really means, and how the truth will affect your financial future.
It’s Not a Solution
Debt consolidation isn’t always a bad thing, but it’s not a solution. If you consolidate with a no-interest credit card or a personal loan, you don’t affect your credit score too much. You do have a lower payment, you do have less interest to pay, and your debt can be paid much faster. The problem is many consumers see this as a solution and no longer consider themselves in debt as much as they were before they consolidated.
If you’re not willing to learn how to manage your debt or learn how to go into the future with more knowledge, this tends to be a catalyst that sends consumers into more debt. Now you have all these credit cards with no balance, and the temptation to use them becomes too great. You must be disciplined enough not to do that, and you must know how to close certain cards and why closing others is a bad idea.
If you stop to do the math when considering debt consolidation with a professional company, you often pay more than you do to just pay off your loan. The price is far higher in many ways. It’s helpful to look at the math. When a top debt consolidation company offers you a lower payment for all your debts along with one interest rate, it does seem a lot less expensive. The problem is many people could pay off their debts a lot faster on their own than they can with a company. Even with a lower payment and interest rate, paying a debt consolidation company for a longer period of time means you’re paying significantly more for significantly longer. There’s no savings there at all.
The other problem with debt consolidation is many people don’t see how it affects their credit. If you choose to work with a company, it’s easy to assume you’re in good hands. The problem lies in being told to cease making payments while the company negotiates settlements with your creditors. You might end up with a lower payment and less interest, but you’re going to have negative remarks on your credit score. You now officially have late payments and missed payments. Those stay there for 7 years. Can you afford to have those marks on your credit for 7 years? They have a lasting negative effect on your credit, and they’re going to haunt your score.
If you want to pay off your debts by consolidating them, do it. Just remember to do the math and see if you’re really saving anything going this route. It’s helpful to take time to learn how to manage your debt without paying more and without falling back into dangerous financial habits. Can you afford to do that without creating more debt? Your job is to learn to manage your finances, stay out of debt, and create a brighter financial future.
The truth about debt consolidation is it works for some, and it doesn’t work for others. It’s not always a bad idea, but it’s not always a wonderful solution. Each consumer looking at debt consolidation as a financial option should consider all the factors and do the math to determine what it really means for their finances before they sign any paperwork or make any financial changes.