All About Home Equity
Loans
You have probably heard a
lot about home equity loans if you have spent any time at all looking at home
financing options. These are loans that
are usually taken out by people who already own a home, and want to borrow
against the value of the home. Not everyone
can get a home equity loan-of course, you have to actually have equity in the
home, as well as the right credit situation.
Home equity loans are a great way to finance major renovations on your
house.
What Is Equity?
It's a term that is heard
a lot, but for those new to the housing market, it might not be one you exactly
understand. It's quite simple,
really. The equity in your home is the
difference between what you currently owe on it and the current market value of
the home. You can achieve equity in your
home in two main ways. The first is by
paying down your mortgage. The second is
by increasing the value of your home, either through renovations you have done
or a general increase in the market.
Loans Vs. Lines Of Credit
Along with home equity
loans, you have probably heard about home equity lines of credit. While they are very similar, there is one
major difference. A home equity loan is
basically like any other mortgage loan.
You take out a loan for the value of the home, and then you pay it
back. When you have paid it off, the
agreement is over.
A home equity line of
credit is a little different. It allows
you to borrow money against the value of your home in much the same way, but
after you pay it off, you can borrow the same amount again. Think of it like a credit card; you have a
certain amount of credit available, and when you pay off what you owe, you can
charge more to the card. A home equity
line of credit offers you an ongoing credit line available for any need you
might have.
Whichever option you
choose, be careful not to borrow too high an amount. Pushing what you owe on your home back up to
the market value can be dangerous. If
there is a dip in the market, you could suddenly find yourself upside down on
the home. If you have borrowed the money
to make renovations, however, your improvements can make up some of that
difference, building even more equity.
