Home equity is the monetary variance between the fair market value of your property and the balance of the mortgage you still owe. For example, after you have owned your home for an extended period, you will have built equity as home values rise and as you continue to make payments on your mortgage. A home equity loan is a type of home loan that allows you to borrow cash against the earned equity in your home. Home equity loans are also sometimes referred to as second mortgages or term loans.
There are several benefits to a home equity loan. One of the key benefits is that interest rates for these home loans are now lower than they were in 2008. Because of this, it is recommended that you take advantage of home equity loans while interest rates are low so you can get the most cash out of your home as possible.
Finding the right lender can help you find the best rates as well as the best home equity loan.
When you are ready to access the equity you have built into your home from payments on your home loan, you can do it in one of two ways: a home equity loan or a Home Equity Line of Credit (HELOC).
With a home equity loan, you will get all of your equity cash at once and will make fixed monthly payments for the entire life of the loan. A Home Equity Line of Credit (HELOC) is different from a home equity loan in that it acts similar to a credit card. With this option, you will make home loan payments and pay interest only on what you spend.
A home equity loan will let you exchange a portion of the equity you have in your home for cash. This money can come in handy when paying for college tuition, medical bills, home improvements, or even to take a vacation. Another good thing about a home equity loan is the interest you will pay is all tax deductible.
A key difference between these two options is a home equity loan will have the same fees as your home loan, including, but not limited to, an application fee, title search, appraisal, lawyer fees, and points, whereas a home equity line of credit may not have any expenses.
Still confused about the difference between a home equity loan or home equity line of credit? Talk With A Mortgage Advisor to learn more and understand your options.
A home equity loan or a home equity line of credit are not the best solutions for everyone. For example, if you have a significant amount of equity in your home, you may want to select a Reverse Mortgage instead. Reverse mortgage home loans are geared towards people age 62 or older that need additional income. You may also want to consider a Cash-Out Refinance if you prefer to just have one loan.
You can use the money from a home equity loan for whatever you like:
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