1What is a home equity loan?
2How do I know how much equity is in my house?
3Is a home equity loan the same thing as a second mortgage?
4What is a home equity line of credit?
5What can my home equity loan be used for?
6What are the advantages to using a home equity loan to consolidate my debts?
7How much can I borrow?
8Do I need collateral?
9Are there any tax benefits to a home equity loan?
10How do I apply?
1 What is a home equity loan?
A home equity loan is simply a loan based on the amount of equity in a home. The loan is based on the amount of ownership you have built up on your home through mortgage payments and appreciation.
2 How do I know how much equity is in my house?
To determine the equity in your home, take the market value of your house, then subtract the amount of debt you still owe on your home. This is essentially the amount of ownership you have built up in your house through payments and appreciation.
3 Is a home equity loan the same thing as a second mortgage?
They can be the same thing. With a traditional home equity loan, or second mortgage, you receive a lump sum of money that pays off your existing mortgage and leaves some money left over for something else. Interest begins accruing immediately. This is sometimes called “refinancing.”
4 What is a home equity line of credit?
This works differently than a traditional second mortgage. With a home equity line of credit, you’ll receive either a checkbook or a credit card to use to access the funds. Interest does not being accruing until you’ve made a purchase. You can make purchases over a period of time, which further reduces interest costs.
5 What can my home equity loan be used for?
You can use the money from your home equity loan any way you like. It can be used to remodel your home, to consolidate your debts, or for just about any other purpose you wish. It is sometimes used to finance large expenses, such as paying for college or a wedding.
6 What are the advantages to using a home equity loan to consolidate my debts?
The interest rate on the home equity loan will be much lower than on credit card loans. You’ll save money on the interest payments. You’ll also have only one monthly payment to make instead of several different payments to different banks.
7 How much can I borrow?
That depends on the amount of equity you have in your home. The longer you’ve been making payments on your home, the more equity you will have.
8 Do I need collateral?
Your home is you collateral. If you fail to repay the loan, you can lose your home.
9 Are there any tax benefits to a home equity loan?
Home equity loans can offer significant tax savings, because the interest paid on home equity loans is tax deductible.
10 How do I apply?
Contact your lender to find out the exact process. You’ll need documentation of the amount you still owe on you home, the market value of your home, and your income and assets.
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