What Is A Home Equity Loan?

First, let’s get a clear understanding what “home equity” is. Home equity is the amount of your home minus what you owe. Here is an example — Your home is worth $100,000 (factors to determine your home value is usually from a home appraisal, or what similar homes in your area have sold for). Your remaining balance on your mortgage is $75,000 (example figure) this is the amount you owe. Therefore, the equity in your home is $25,000. So, what is a home equity loan? This is a loan borrowed on/against the equity of your home.

Home Equity Loans Explain On Video

Home Equity Loans Vs. Line Of Credit

Home Equity Loans can be used for tax deductions, lower interest rates and longer term loans. So, home equity loans do have their advantages. You should know, a home equity loan acts like a second mortgage. Just like your 1st mortgage, when you have a home equity loan you will locked into a fixed interest rate, and time period as to when the terms of the loan is completed. However, a line of credit is different. The interest rate can vary over time and depending when you decide to use the funds in the credit line determines the terms. So, which is better a “Line of Credit” or “Home Equity Loan“. It really depends on what you want the money for. See recommendations below.

Home Equity Loan Vs. Line Of Credit Explained on Video

Home Equity Loan or Line of Credit Usage

For non-recurring expenses – Use a Home Equity Loan. Non recurring expenses could be a home improvement project.

Recurring expenses – Use a Line of Credit.

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