What’s the Deal with Home Equity?

With these low interest rates, you may be considering a loan. One of your many loan options is something called a home equity loan. Is it an option for you? Should it ever be considered? Is now the best time? We’re going to look at some of those things so that you can make an educated decision.

A home’s equity is the difference between what is owed and what the house’s fair market price. For example, if your home is worth $150,000 and you owe $75,000 on your mortgage, then your home’s equity is $75,000. You can take out all or part of that in the form of a loan or line of credit.

A home equity loan is like any other loan; it provides a certain lump sum of cash all at one time, has monthly payments and accrues a set amount of interest.

The other way to utilize your home’s equity is something called a home equity line of credit, or a HELOC. This allows you to get cash advances and use it as a credit account. Minimum payments are easier to make, the interest is variable, and the payment plans are flexible, but, unlike other lines of credit, it eventually expires.

Home equity loans are sometimes called “home improvement loans.” Giving your home more value should be the primary reason you consider home equity loans.  If you want to put an addition on your home, fix it up somewhat, or do some more expensive wear-and-tear maintenance, a home equity loan is a viable option. If you are doing home improvements, make sure that you compare your home equity rates with home loan rates. If the home loan rates are better, then consider doing that instead.

It is also a good idea to use your home’s equity for other things that are considered good investments, like an education. The other thing is that, if you’re going to risk your house to buy something, it should be an investment. Don’t use it to go on vacation, to buy a car, or anything else that depreciates. Your house is where you live, be wise with what you do with part of its value; you can lose your home if you don’t make payments as you should.

Always talk to a professional before making any type of decision. You need to go through the financial institution that manages your mortgage. Find one of the investment professionals to help you figure out whether you want to have a loan or a HELOC. It usually involves an application process, just like any other loan or line of credit. Make sure that you’ve weighed out all of your options so that you can make the best decision for your family and budget.

Have you considered a home equity loan? What other tips would you have for making the decision? Is it really a great time to do this, or should you just leave your home’s value you alone? Have a great week, and we’ll see you here next week.

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