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Finance
Finance
Putting Your Home Equity To Work For You
If you are looking for a way to consolidate debts, make
improvements to your home, or finance a college education,
you may be considering getting a home equity loan or home
equity line of credit. Here is a brief overview of these
loans and some unique aspects of each.
A home equity loan is a fixed rate loan based on the amount
of equity you have in your home. Equity is the the actual
value of your home, or in other words, the difference
between the market value of your home and the balance
remaining on the first mortgage. It's the cash value you'd
get from your home if you were to sell it today at full
market price, and pay off the remainder of your mortgage
with the proceeds.
Here is an example: If you have a home worth $200,000, and
you have paid off $50,000 of the principal from your first
mortgage, you have an equity value of $50,000.
Consequently, if you were to apply for an equity loan on
this home, you would be able to obtain up to $50,000.
Home equity loans are often referred to as second
mortgages, and the repayment period is normally ten to
fifteen years, in contrast with the 30 year payback
schedule offered for most first mortgages. Payback periods
and interest rates for home equity loans will vary from
lender to lender, so you should research current rates
before committing to a specific lender.
Another way to get cash from the equity in your home is to
obtain a home equity line of credit, or HELOC. Home equity
lines of credit are comparable to home equity loans in that
you can borrow as much as the total value of your home's
equity. The main difference between the two loans is that
with a HELOC, you're setting up a revolving line of credit
instead of borrowing a fixed amount of money. A home
equity line of credit is similar to a credit card and other
types of credit line accounts: as you pay off the balance,
more money becomes available to borrow.
Home equity loans normally have a fixed rate of interest,
so locking in a low rate can save you money in the long
run. The HELOC however, has a variable interest rate which
can change over the life of the loan, causing your payments
to fluctuate.
With a HELOC, lenders will frequently require a borrower to
initially withdraw a minimum amount of money. There may
also be minimum requirements for subsequent uses of the
line of credit. When drawing on the account, the money
will be disbursed either by check, credit card or
electronic transfer.
Whether you go with a home equity loan or a line of credit,
you will have to pay the balance in full if you sell the
home. Before setting an asking price on your home, you
should take into account this additional expense.
----------------------------------------------------
Gregg Pennington writes articles on a number of topics
including mortgages, loan consolidation, and home equity
loans. For more mortgage information visit
http://www.onlinemoneysources.net/mortgage.html
If you are looking for a way to consolidate debts, make
improvements to your home, or finance a college education,
you may be considering getting a home equity loan or home
equity line of credit. Here is a brief overview of these
loans and some unique aspects of each.
A home equity loan is a fixed rate loan based on the amount
of equity you have in your home. Equity is the the actual
value of your home, or in other words, the difference
between the market value of your home and the balance
remaining on the first mortgage. It's the cash value you'd
get from your home if you were to sell it today at full
market price, and pay off the remainder of your mortgage
with the proceeds.
Here is an example: If you have a home worth $200,000, and
you have paid off $50,000 of the principal from your first
mortgage, you have an equity value of $50,000.
Consequently, if you were to apply for an equity loan on
this home, you would be able to obtain up to $50,000.
Home equity loans are often referred to as second
mortgages, and the repayment period is normally ten to
fifteen years, in contrast with the 30 year payback
schedule offered for most first mortgages. Payback periods
and interest rates for home equity loans will vary from
lender to lender, so you should research current rates
before committing to a specific lender.
Another way to get cash from the equity in your home is to
obtain a home equity line of credit, or HELOC. Home equity
lines of credit are comparable to home equity loans in that
you can borrow as much as the total value of your home's
equity. The main difference between the two loans is that
with a HELOC, you're setting up a revolving line of credit
instead of borrowing a fixed amount of money. A home
equity line of credit is similar to a credit card and other
types of credit line accounts: as you pay off the balance,
more money becomes available to borrow.
Home equity loans normally have a fixed rate of interest,
so locking in a low rate can save you money in the long
run. The HELOC however, has a variable interest rate which
can change over the life of the loan, causing your payments
to fluctuate.
With a HELOC, lenders will frequently require a borrower to
initially withdraw a minimum amount of money. There may
also be minimum requirements for subsequent uses of the
line of credit. When drawing on the account, the money
will be disbursed either by check, credit card or
electronic transfer.
Whether you go with a home equity loan or a line of credit,
you will have to pay the balance in full if you sell the
home. Before setting an asking price on your home, you
should take into account this additional expense.
----------------------------------------------------
Gregg Pennington writes articles on a number of topics
including mortgages, loan consolidation, and home equity
loans. For more mortgage information visit
http://www.onlinemoneysources.net/mortgage.html