When To Use Your House As Equity


Have you been dreaming about getting an extreme home makeover or fantasizing about a European trip? Maybe you feel depressed because achieving these dreams seems impossible. Don’t despair, because maybe they are possible, and you just might be sitting on the answer – your home.

The equity in your home could help finance your dreams. Home equity is the difference between your home’s fair market value and the outstanding balance of all liens on your house, such as your mortgage and other loans. Your property’s equity grows each time you pay your mortgage and also when its value appreciates during a normal real estate market.

The equity in your home could help finance your dreams.With home values again on the rise, your house may have enough equity so that you can get a loan against it, and that may allow you to finance other things. Contact your financial institution to find out how much equity is in your home, and ask what the interest rates are for borrowing against it. They will tell you how much you can borrow and provide options for repayment terms.

There are two kinds of home equity financing to choose from: a home equity loan (HEL) or a home equity line of credit (HELOC). Both of these are considered to be a second mortgage. A HEL is a loan for a specific amount of money, and it has a set repayment schedule. This is a good option if you wish to borrow a specific sum of money right away, such as $20,000. Then you’ll have regular monthly payments over a specified period of time for a certain number of years.

A HELOC, on the other hand, is a good choice if you’re not certain how much money you’d like to borrow, or aren’t in a rush for the cash, or if you would prefer to repay the money more quickly. You might even consider getting a HELOC so it’s available in case you want to finance something in the future or have access to cash for an emergency. “HELOCs can be an excellent money management tool when used properly,” says California-based mortgage consultant Greg Cook.

Either a HELOC or HEL is a more advantageous way to borrow money than using credit cards, which have higher interest rates. Another benefit of home equity loans is that the interest may be tax deductible. (Always check with your accountant for details.)

Here are some occasions to consider a home equity loan:

  • Home Improvements: Updating your home, such as renovating your dated kitchen or 1950s style bathroom, can help to bolster your property value. Just don’t end up the most expensive house on the block, which could negatively impact your resale value.
  • Education: Maybe now is the perfect time to return to college and finally get that degree, or help your teenager finance their college tuition.
  • New car: If you can’t get a low financing rate on a car loan, then this could be a good solution for you. Make sure the vehicle is within your financial means.
  • Trips: Have you been dreaming of visiting Paris or hiking the Grand Canyon? Tapping into the equity in your home can help fund your next getaway. For such a splurge, make certain you have plenty of equity, and only borrow the amount that will cover your trip and associated expenses.

If you’re thinking about getting a home equity loan, it’s a good idea to compare the interest rates, costs, and monthly payments. Then you can make an educated decision as to which type of loan is best for you.

 

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