For many, owning a home is a peak on the rollercoaster of life. This tangible asset is a place for you and your family to grow and thrive. It’s a place all your own that you can gussy up any which way you choose. Besides, navigating the homebuying was hard enough! (They really should hand out awards for that, shouldn’t they?)
Now there’s more to learn and it’s all about equity.
What is Home Equity?
Whether you’re a new homeowner or are halfway through your mortgage, you’ve been building equity. Home equity is the difference between your home’s value and what’s left on your mortgage (or any other lien). The bigger the dent in the principal, the more home equity you have.
Generally, you begin earning equity with each mortgage payment. If you’ve made a downpayment on your home, that’s equity, too!
Why Would I Need Home Equity?
A homeowner might need to tap into their home’s equity for a number of reasons, all of them equally valid. Home equity uses and benefits can include:
- Home renovations
- College tuition
- Medical expenses
- Major life events like weddings or medical expenses
- Debt consolidation
Many homeowners like to have peace of mind knowing that large financial decisions can be handled because their home has equity.
How Do I Access My Home’s Equity?
First, you’ll want to make sure you have at least 15-20% equity in your home, though the qualifications can differ by lender.
Once you have that, you need to determine if a Home Equity Line of Credit or a Home Equity Loan is right for you. Let’s go over the differences.
- Home Equity Line of Credit: Also known as a HELOC, this line of credit works similar to a credit card in which you have a limit and can spend, then pay off, and spend again. These usually come with a variable interest rate and accrue interest during the draw period and amount taken out, also similar to credit cards.
- Home Equity Loan: Commonly referred to as a HELOAN, this is a lump-sum, one-time payment with a fixed interest rate and payments. You cannot spend, pay, and spend again like you can with a HELOC.
Both have their own advantages, but it really boils down to what you need to use it for and what your financial position is. Consider these questions:
- What am I using my home equity for? Are these one-time or ongoing expenses?
- Do I want stability or flexibility in payments?
- Will I use my home’s equity for more than one expense? That is, do you want to be covered for unexpected potential expenses, or do you know the exact cost?
Where Can I Go for More Information?
There are certainly more considerations when it comes to using your home’s equity, like home appraisals, qualifications, and associated costs, but we’ll get to those in another article.
If you’re ready to begin exploring your home equity options now, you can learn more and set up a consultation with one of our team members. We can guide you in the right direction and open up the door to possibility!