Home Equity 101
Unlocking your home equity can be a game-changer! As your home’s value grows, so does your equity, opening up new financial opportunities. Learn how to leverage this growth and turn it into real benefits for your future.
Bank on Equity.
When your home’s value exceeds what you owe on your mortgage then presto, you have home equity that you can use to consolidate debt, tap for home improvements, or even spend on a vacation or other purchase.
To figure out how much equity you’ve built, just take your home’s current market value and subtract what you still owe on your mortgage. And here’s a little secret: your home equity isn’t just about the payments you’ve made. If your home’s value has increased—maybe your neighborhood is becoming the next hot spot—you might have more equity than you think, even beyond what you’ve paid off so far.
Home Equity Loans
A home equity loan allows you to borrow against your home’s equity. It’s often referred to as a “second mortgage,” and it comes in two main types: a home equity installment and a home equity line of credit (HELOC). More on the differences between those later.
Home equity loans are typically used for home-related projects, like renovations and additions, but they can really be used for anything. You might use one to consolidate debt, or even just take a vacation. The interest on your home equity loan may even be tax deductible. (Consult your tax advisor for more information.)
Yes. Home equity loans use your home as collateral. That’s why it is important to talk to your credit union about a home equity loan before you take one out. Make sure you are comfortable with the amount and terms of the loan.
Yes. If your home equity loan isn’t paid off at the time you sell your house, proceeds from the sale will go toward paying it off.
Home Equity Installment vs. Line of Credit
With an installment loan, you receive the total amount up front and make monthly payments based on the term of the loan. Installment loans typically have a fixed interest rate, which means your interest rate will never increase.
With a line of credit, you access money as needed up to an approved limit, and you have the flexibility of making minimum or interest-only monthly payments. One benefit of a HELOC is that you only pay back, and pay interest on, the amount you use. The drawback is that the interest rate on a line of credit is usually variable, so your monthly payment could go up. You may have a lump sum payment due at the end of the loan.
Is a Home Equity Loan for you?
Whether you qualify for a home equity loan will depend on the lender you’re obtaining it from. When you apply for a home equity loan, lenders will consider factors like your income, credit score, and loan-to-value (LTV) ratio—which is determined by taking the amount you owe on your mortgage(s) and dividing it by your home’s current market value. Additionally, part of the approval process may require a home appraisal.
Technically, it’s possible to get a home equity loan soon after you close on the first mortgage. However, you will typically have to pay down your mortgage for several years before you build enough equity to qualify for a loan.
This is a fair question. The answer is it absolutely could be, but it depends entirely on your situation. If you meet a lender’s qualifications, then a low-rate home equity loan could be an excellent option to help you renovate your home, consolidate high-interest debt or reach some other goal. It allows you to leverage one of your most valuable assets.
Teaching is in Our DNA.
Sharing our knowledge is yet another way TruStone benefits our members. So go ahead, enrich yourself in our Financial Education Program today.
5 Ways to Cut Costs & Save More
There are literally thousands of ways to stretch a buck and keep more of them in your pocket. Simple things, like brewing your own morning Joe vs. buying that expensive latte at the drive-thru. We’re here to help you save in every way.
9 Simple Steps to Buying a Home.
Have the jitters about diving into your first home purchase? We get it, and we’ve got you. That’s why we put together this handy 9-step guide to buying. But hey, let’s make it an even 10-step approach… Step 1: Relax and take a deep breath – this is going to be easy.
What To Shred, What To Keep.
Decide what to keep and what to shred. It’s a great way to protect your info and tidy up that messy filing cabinet!
This blog article is intended to provide you with a general understanding of the subject matter. It is not intended to provide legal, accounting, or other professional advice and should not be relied on as such. Information may have changed since the publication date.