hat is Home Equity?
What is the Value of Home Equity?
Purchasing a home is a
huge event in anyone’s life. It’s Home equity is money in the bank.
an investment that, over time, Home owners can borrow against
will yield you a significant their home’s equity to pay for
profit. As the years progress, home repairs and renovations,
the value of your home will school tuition, costly medical
increase. When the time comes to expenses, and even pay off debt.
sell, you’ll find that in most Your home provides you with
cases you’ll be able to get financial opportunities not many
significantly more for your home lenders can provide. Home equity
than what you originally paid for is a significant advantage to
it; yielding you a profit on your purchasing a home and a great
original investment. financial resource to have. You
never know what life will throw
But the resale value of your home at you. It’s always good to have
is not the only value your home a readily available resource to
contains. When you purchase a turn to when you’re faced with a
home and make payments on your financial crisis.
home mortgage, you start building
what is called home equity. Home How do I use My Home Equity?
equity is the difference between
the current resale value of a If you want to use your home’s
home and the amount still owed on equity for home repairs, college
the mortgage. As the principal of tuition, etc., you first need to
the mortgage amount decreases as get a home equity loan. A home
a result of monthly mortgage equity loan is a loan based on
payments, the home equity your home equity. There are two
increases. types of home equity loans: 1) a
second mortgage (a.k.a. interest loans and, for most home
traditional home equity loan); equity loans, the interest you
and 2) a home equity line of pay is tax deductible.
credit loan. A second mortgage is
a loan where the lender lends you However, it is important to know
a lump sum, based on your home’s that when you take out a home
equity, and interest starts equity loan, it means the lender
accumulating once the loan is can reposes your home if you
issued. A home equity line of default on your payments. In
credit loan, however, is a loan other words, if you don’t pay
where the lender presents you your home equity loan in full or
with a credit card or checkbook default on too many payment, the
that you can use to make bank or lender can take away your
purchases. Just like a second home and use its current value to
mortgage, the amount you can pay for what’s owed. So it’s
spend is based on your home’s crucial that you maintain your
equity. But unlike a second loan payments. A home equity loan
mortgage, interest on a home is a great financial resource,
equity line of credit loan but if you don’t pay it back, it
doesn’t start accumulating until could end up costing you your
you make your first purchase with home.
the card/checkbook.
Purchasing a home is a venture
Both home equity loan types are worth taking. The appreciation of
feasible means to utilizing your your home’s value and the equity
home’s equity. Which type of loan you can build make your home a
you choose is up to you and your profitable investment that can’t
specific financial needs. Both easily be matched.
loan types are primarily low
About the Author:
Brad Stroh is currently co-CEO of Freedom Financial Network and Bills.com. If you would like more of Brad’s articles, please visit the Bills.com information on Mortgages.
Read more articles by:
Brad Stroh
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