The title of the article in a recent edition of the Toronto Star grabbed my attention immediately: “It may be the right time to take the plunge” into the housing market.

Note the use of the word “may”, suggesting that it may be the right time, but, depending on your circumstances, it may not. What advice did this article (and other recent ones like it) offer to prospective home buyers?

First, you should look to economic indicators to determine whether it is the right time to purchase a new home. Recent news has been good. According to Statistics Canada, the economy grew in June, 2009. The 0.1% increase was the first since July of 2008. News stories from across the country have talked about a robust real estate market, and even a return to bidding wars over highly desirable homes. Car sales are also up. And through it all, interest rates have remained low.

While all of these signs are positive, home buyers should still exercise caution, according to one expert quoted in the Star article. Margot Bai – author of the book Spend Smarter, Save Bigger – recommends that people be conservative. Her advice is summarized below:
•Aim for at least a 10% down payment, but try for 20% if possible. Anything less than 10% means you’ll have to fork over thousands for mortgage insurance.
•Do not rely on low mortgage rates to buy a home that is, in reality, out of your price range. When interest rates go up – and they will go up eventually – you could find it difficult to make payments.
•If you are looking to move into a bigger home, make sure your job is secure. If you have any doubts, stay where you are and build equity in your existing home.
•Speaking of equity, Bai also recommends that you accelerate your mortgage payments and keep the amortization period as short as you can manage – 15 years if possible. This will allow you to pay off more of the principal faster, and save you tons of money in interest over the course of the mortgage.

Of course, anyone with experience in the home buying game will tell you that getting your finances in place is an essential first step. A pre-approved mortgage will tell you what you can afford, and the quoted rates are valid for 120 days.

If you are ready to “take the plunge”, do some research before you even start looking. Select a few neighborhoods with prices you can afford and evaluate each one carefully. Consider things like proximity to work, commuting time and the amenities available in the area. Perhaps it is better to look for a smaller house closer to work than it is to move to a larger house that will require a frustrating hour-long drive to work. Or maybe you want to be close to shopping so you spend less time in the car running errands.

Once you have decided on a location, be sure to take an honest look at any homes you are considering. Make sure they are right for you now, and right for the future. Try to view the home multiple times so you can really get a feel for whether it will suit your needs. Then, and only then, should you put in an offer.

Home equity loan and refinancing are two excellent ways that can help you manage your finances. However, it may prove difficult to choose one from the other and should depend on what your financial goals are. You can opt for the lower payment schemes of cash-out refinancing, or you can choose the great tax benefits offered by ahome equity loan . The choice, however, does not prove to be as simple as this. Here is a comparison of these two types of loans to help you see which one is right for you.

Cash-out refinance simply means that you are refinancing your existing mortgage in order to lower your monthly payment and/or your current interest rate, and get some additional cash for other pressing reasons such as for home improvement, renovation, and the likes. If you are lucky to choose the right timing, you may be able to get all these with cash-out refinancing. Say, your home is valued at $300,000 and your existing mortgage balance is $200,000, your home equity remains at $100,000. You are free to borrow the remaining equity as you deem necessary.

Home equity loans are usually provided in two kinds: the home equity line of credit and the home equity installment loan. A home equity line of credit line means that you are borrowing against the value of your home; your home is your collateral to the credit. Home equity plans are usually set at a fixed time; say 10 years but with variable loan rates. Your interest rate and the annual percentage rate of your mortgage can move up and down depending on the market trends. During the specified time, you are free to obtain the cash when you need it, and pay only for what you happen to spend. Some mortgages are offered with payment of full outstanding balance, while others allow repayment over a fixed time.

On the other hand, an installment loan is a loan that has a fixed rate that stays the same all throughout the rest of your home equity loan terms. Also called the closed end home equity loan, you amortize your loan for periods lasting up to about 15 years. In this kind of loan, you usually receive a lump sum at closing depending on your home value, and you can not borrow further afterwards.

Which is better?

Remember that interest rates do not usually behave normally, much as you want them to. When this happens, home equity loans may actually prove cheaper than refinancing, although they are potentially riskier. Choosing what is better between the two should depend on individual circumstances. For example, if you plan to pay off your mortgage and do not need as much money, you can go for ahome equity loan to get lower rates and shorter terms. On the other side of the fence, with cash-out refinancing, you can get all your money up front and simply pay off interest and principal on a lowered monthly basis as agreed upon, with no frills. Weigh carefully based on what your financial objectives are and choose one which you think will give you a fairer deal.