MASSMutual Employees: Home Equity Loans and Lines of Credit

MASSMutual employees, considering home equity financing as a strategy, should understand their needs and the implications of home equity loans and lines of credit, advises (Advisor Name) of the Retirement Group, a division of Wealth Enhancement Group. This helps them choose the best way to leverage their home value, he said.

Home equity options can give MASSMutual employees significant financial leverage - but there are risks and benefits too, advises (Advisor Name) of The Retirement Group at Wealth Enhancement Group. 'I would suggest they compare terms and costs carefully to protect their financial position and maximize the value of their equity.'

In this article, we will discuss:

1. The Basics of Home Equity Financing: Understanding home equity loans and lines of credit - and how homeowners can use them if they need extra cash.

2. Comparative Analysis of Loans versus Lines of Credit: Learn about fixed home equity loans versus revolving home equity lines of credit - terms and conditions.

3. Financial Implications and Considerations: Experiencing costs, risks and taxes of using home equity for financial need.

And if you are leaving MASSMutual and need more emergency funds. Planning on renovating your shabby kitchen? You may be underwater on credit cards or you need to pay for college. Or perhaps you just want the security of having a cash reserve account when you search for a new job after leaving MASSMutual to cover your bills. Whether you have a home equity loan or line of credit is up to you - as a homeowner - then you may qualify for one.

Before you sign that dotted line, though, we suggest these MASSMutual employees conduct a little research to see if the product or service meets their needs.

But What Is Home Equity Financing Exactly?

Property equity financing is a loan secured by your house equity. That's why most lenders charge higher interest on secured personal loans than unsecured personal loans. You will usually borrow 80% of your equity.

Tip: Mortgage refinancing involves getting a new home mortgage loan and paying off an existing mortgage (or mortgages) on the property.

Caution: Since home equity financing is secured by your property, you risk losing it if you default on the contract.Home equity financing could be a loan or a credit line.

Home Equity Loans

A home equity loan is a loan of a fixed amount and term. A typical home equity loan:

The entire loan amount is advanced at the beginning of the term. A fixed interest rate. It requires equal monthly payments of equal amount to repay the loan (including interest) over the specified term.

Lines of Credit - Home Equity.

Some MASSMutual employees are curious about what happens when a home equity line of credit is granted. You get revolving credit up to a limit with a home equity line of credit (HELOC). In terms of the loan agreement, you borrow only what you need and pay for only what you need. Typically, a HELOC is:

Write a check or use a credit card against the available balance during the borrowing period. Carries a variable interest rate based on a public economic index plus the lender's margin. Monthly payments may be different based on your outstanding balance and/or the interest rate being charged.

HELOCs come in many flavors. For those MASSMutual clients who are considering one: What should they ask for:

How frequently is the interest rate changed? Which adjustment limit dictates the maximum rate change per adjustment? Where does the total interest rate ceiling (lifetime cap) lie? How long is the loan good for? Can it be renewed? Those monthly payments will be for interest only or principal will be paid as well? Is there a balloon payment due at the end of the loan term? Is the loan convertible to a fixed rate, fixed term loan?

Caution: Several HELOCs limit the required monthly payment amount, but not the interest rate adjustment. In such plans, MASSMutual clients must understand that payment limits can cause negative amortization in rising interest rate periods. Any monthly payment that would be less than the interest paid on that month would add the unpaid interest to your principal and your outstanding balance would grow despite your continued monthly payments.

What Are The Costs?

The cost is another common question MASSMutual customers ask. Oftentimes the fees associated with a home equity loan or line of credit are comparable to those of a mortgage. They consist of:

Application charge Fee for property appraisal Points (1 point equals 1 percent of the loan amount or lending limit) The costs of closing can include attorney, title inquiry, and mortgage preparation/filing fees.

Using a home equity loan or line of credit may be an option for 60-year-olds needing extra cash in retirement, according to an EBRI study in August 2022. Nearly three out of four retirees with a mortgage had outstanding mortgage debt, so drawing on home equity through loans or lines of credit could help them pay for their needs. And the EBRI study also showed that homeowners using home equity financing had greater retirement savings than non-users - indicating that leveraging home equity could be a smart financial move during retirement planning.

A HELOC could also charge an annual maintenance fee and/or transaction fee for each withdrawal.

These MASSMutual employees shop around before committing to a plan. Interest rates and other fees vary by lender. When comparing costs, you can not compare the annual percentage rate (APR) of two plans - especially if one is a home equity loan and the other is a HELOC. Points and financing fees are included on a home equity loan (second mortgage) but not on a HELOC annual percentage rate (APR). Compare total expenses.

Tip: The Truth in Lending Act gives you three days to cancel the contract if your primary home is collateral for the home equity financing plan. You must cancel the contract by writing. The lender then releases any security interest in your home and refunds the fees you paid.

Other Considerations

More Factors our MASSMutual customers Need to Know Before Taking a home equity loan or line of credit:

When you sell the property you repay the equity loan or credit line. If you sell soon after getting financing, the cost of financing might reduce your profit on the sale. A home equity line of credit can be pricey if only a small amount is withdrawn. A home equity financing agreement may prohibit you from leasing your home out.

What Is Best-A Loan or A Line of Credit?

Whatever works best for you, there is no magic number or formula - just a general rule of thumb. You could get a home equity loan if you need a fixed amount of money at once for something like kitchen remodeling or paying off other high-interest debts.

Example(s): Your contractor estimates USD 35,000 for remodeling your kitchen. You take out a home equity loan because you'll use the entire amount over the two-month project period. For 15 years at a fixed interest rate of 7.25 percent, you will pay USD 320 per month in whole dollars. Your interest expense is USD 22,510. Get a HELOC if you need an undetermined amount over a period of years (e.g., college fund or cash reserve account).

Example(s): You convert the HELOC to a USD 47,000 home equity loan at 7.25 percent with a 10-year term when your child graduates. Your monthly payment is USD 551, and interest will total USD 19,214 over the life of the loan. When you add this to the annual interest charges on your HELOC for the four years your child attended college, your interest payments total USD 26,103.

Example(s): When your child started college, you would have owed USD 429 on a USD 47,000 home equity loan at a fixed rate of 7.25 percent for 15 years - and paid USD 30,228 in interest.

The Tax Impacts of Home Equity Financing.

Some home equity financing plans let you deduct interest on up to USD 100,000 (USD 50,000 if filing separately) of the principal you borrow. Interest you pay is generally deductible regardless of how the loan or line of credit proceeds are used (unless used to purchase tax-exempt vehicles). That is, the loan or line of credit is not needed to purchase, construct or improve a home.

Imagine your house as an investment chest full of items you've accumulated over time. Like a chest, you can unlock its potential through home equity loans and lines of credit. Consider a home equity loan like a key to the chest that gives you access to a certain amount of money upfront to help you pay for big expenses like renovating your kitchen. In contrast, a home equity line of credit is like a magic wand that lets you withdraw money whenever you want to pay for something like college for your kid or unexpected expenses in retirement. As a treasure chest can provide financial flexibility and security, home equity financing lets you draw on the value of your home to meet your changing financial needs.

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Sources:

1. Investopedia : 'Should You Use a Home Equity Loan for Retirement Savings and Investing?' Investopedia. Accessed [date].  https://www.investopedia.com .

2. Boldin : 'Should You Secure a Home Equity Loan Before You Retire?' Boldin. Accessed [date].  https://www.boldin.com .

3. HomeLight : 'Using Your Home Equity for Retirement Income: 5 Options to Explore.' HomeLight. Accessed [date].  https://www.homelight.com .

4. LendEDU : Kirste, Eric, CFP®. 'HELOCs for Seniors: Should You Tap Home Equity for Retirement?' LendEDU. Accessed [date].  https://www.lendedu.com .

5. Experian : Hayes, Marianne. 'How to Use Your Home Equity for Retirement Income.' Experian, 5 Feb. 2023.  https://www.experian.com .