Home equity is the portion of your home’s value that you own outright. You can access your home equity by taking out a home equity loan or a home equity line of credit. Home equity can be used for a variety of purposes, including home improvements, debt consolidation, and investment.
What Is Home Equity?
Home equity is the market value of your home minus any outstanding mortgage balance. In other words, it’s the portion of your home that you own outright.
For example, let’s say your home is worth $250,000 and you have a mortgage balance of $150,000. This means you have $100,000 in home equity.
You can increase your home equity by paying down your mortgage balance and/or by increasing the market value of your home through renovations or other improvements.
How to Access Your Home Equity
There are two main ways to access your home equity: through a home equity loan or a home equity line of credit (HELOC). A home equity loan is a lump sum loan with a fixed interest rate and fixed monthly payments. A HELOC works like a credit card—you’re approved for a certain amount and can draw on that amount as needed up to the limit. HELOCs typically have variable interest rates. To qualify for either a home equity loan or HELOC, you’ll need to have at least 20% equity in your home.
If you’re not sure how much equity you have in your home, we have tools that can help you figure that out. Contact us and we’ll help you! Keep in mind that this is only an estimate—to get an official appraisal done, you’ll need to contact a licensed appraiser in your area.
Home Equity Loan vs HELOC
The main difference between a home equity loan and HELOC is how you access the funds and what you pay back each month. With a lump sum loan like a home equity loan, you borrow all the funds at once and make equal monthly payments until the loan is paid off—similar to your first mortgage. A HELOC works like a credit card—you’re approved for a certain amount and can draw on that amount as needed up to the limit. The benefit of this is that you only pay interest on the funds that you actually use rather than borrowing all the funds upfront like with a lump sum loan. However, because HELOCs typically have variable interest rates, your monthly payments could go up or down depending on market conditions.
Overview
Home equity is the portion of your property’s value that you own outright—i.e., what’s left after subtracting any outstanding mortgage balance from the property’s appraised value or fair market value. You can access your home equity by taking out either a lump sum loan (known as a home equity loan) or setting up a line of credit (HELOC) against it. Because lenders view borrowers with substantial amounts of available home equity as low-risk, loans and lines of credit backed by this type of collateral tend to come with more favorable terms than unsecured loans such as personal loans or credit cards. As such, they can be used for almost any purpose including debt consolidation, investment, or even large purchases such as cars or boats!