Home-equity refers to your home’s fair market value minus any outstanding loans or interest that may represent a 3rd party’s ownership of your home. Any down payment that you have made on your home, plus payments you have made towards your mortgage, goes towards your home-equity amount.
A home-equity loan is when you use the amount of your home-equity to leverage a loan. There are two types of home equity loans: fixed-rate loans and lines of credit.
*Note: If you sell your home, the amount of your home equity loan must be repaid in full.
What are Fixed-Rate Loans?
A fixed-rate loan is a single, lump-sum payment to you. You repay this loan over a set period of time (usually 5-15 years) at a set interest rate. The amount borrowed and the interest rate do not change.
What is a Home-Equity Line of Credit?
A home-equity line of credit functions somewhat like a credit card. You are pre-approved for a certain amount of money, and you may use as much or as little of that amount as you need. Payments depend on the amount borrowed and the current interest rate.
Benefits of a Home-Equity Loan
Pay Off Your Credit Cards. Credit cards have a higher interest rate than home-equity loans, so it makes good financial sense to pay your credit card amount with a home-equity loan, then pay off the home-equity loan.
Save on Tax. Interest that you pay on a home-equity loan is tax deductible.
Pay for Big Items. If you know that you have a fixed income and will be able to pay off this loan, home-equity loans make a lot of sense. For the responsible consumer, home-equity loans can be a great way to finance roof repairs, tuition, and other pesky large-sum amounts.
Getting any loan requires consideration and research. If you are considering a home-equity loan, fill out our 2-minute home equity loan application and let us answer any questions you might have based on your particular situation.