Equity is the market value of your home minus your outstanding mortgage. Every mortgage payment you make is an investment, building equity. Meanwhile your home is also appreciating in value. Lending institutions, namely the one that holds your mortgage, will loan you money against your home equity.
Although this is not something you should jump into without counting the cost, it may be wise to borrow against your equity to remodel, make repairs, finance an education, or to consolidate higher interest rate debt. Many home owners have been grateful for the availability of a home equity loan.
Equity Loans
Two types of home equity loans are the second mortgage and the home equity line of credit. The second mortgage is a loan of a lump sum of money and just like your first mortgage is to be paid off through regular monthly payments with interest for a fixed period of time.
The home equity line of credit provides the borrower with a credit card or checks with which you borrow against the home equity. With the home equity line of credit, interest only accrues on purchases you make with that credit card or checks provided. Interest paid on a home equity loan is tax deduct able.
Equity Loan Procedures
When taking out a home equity loan the procedure is much like getting your original mortgage but not quite so involved. You will want to be prepared just as you were for your mortgage by having a good credit rating and hopefully your record of paying those mortgage payments is on track.
The lending financial institution will consider your credit score and income to debt ratio along with the equity you have built up in your home. If you’ve made home improvements already, this is a plus as it increases the home’s market value and as you recall, equity is the market value of your home minus the outstanding mortgage.
Whatever your particular needs, home ownership is a sound investment as you will find when you get approved for a home equity loan. Consolidating debt, making home improvements or repairs, financing a child’s or your own education, or perhaps some other investment, the choice is yours when you borrow against your home’s equity.
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