Tag Archives: home equity

Home Equity Basics from Member One

Your home improvement to-do list is a mile long, but you’re lacking the funds to get anything done. Sound familiar? Since the likelihood of stumbling upon a pot of gold is none, consider tapping into your home equity—the difference between what your property is worth and what you still owe on your mortgage. Read on to learn more about how to leverage your home’s hidden value.

Do the math. Home equity is calculated by looking at the value of your home and subtracting the amount you owe on any mortgages. Let’s say your home is valued at $200,000, and you owe $150,000 on your mortgage. That means you have $50,000 in equity you could potentially use to fund a renovation.

Know the difference. With a home equity loan, you receive the money you’re borrowing in a lump sum payment. It usually has a fixed rate and is often best for large, one-time expenses like a new roof. A home equity line of credit (HELOC) operates more like a credit card in that you can draw money as needed from an available maximum amount. This is best for ongoing expenses that require spending flexibility.

Shop around. You have to apply for a home equity loan or line of credit through a financial institution that offers it. As with any loan, shop around for the rate and features that fit your financial situation. It’s important to understand that committing to a home equity loan or line of credit means you’re using your home as collateral—if you don’t repay the loan, it could go into default, and you could risk losing your home. Make sure you understand the terms and only borrow the amount you can afford.

Budget accordingly. One of the most common ways to use a loan or line of credit is for renovations because they add even more value to your home. You can also use it for things you might not expect like college tuition, debt consolidation, or unexpected medical costs. Whatever you decide to fund, make sure it fits your budget. If your income is unstable and you can’t keep up with the payments, it’s probably not a good idea to incur more debt. If you don’t need to borrow much money or you’re just going to use this for basic day-to-day expenses, it might be wise to consider different options—such as a credit card—or reevaluate your spending habits.