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One of the pluses of property ownership is the opportunity to build equity. If there's ever a time that you need a considerable amount of cash (such as for paying off debt or a home remodel), you'll have access to it by borrowing against your home equity. That's essentially the purpose of a home equity loan.
In this article, we'll review what a home equity loan is as well as alternatives that also give you access to lump sums.
Equity is based on the difference between what's owed on the mortgage and the home's current worth. For example, if your mortgage is $150,000, but your home appraises at $200,000, your equity is $50,000. The amount you're approved for in a home equity loan is based on this difference.
Home equity loans have fixed interest rates that are lower than personal loans or credit cards. So if you are looking to borrow a large sum, you're often better off with a home equity loan rather than a personal loan or charging it all to your card.
The biggest downside of a home equity loan is the requirement of using your home as collateral. So if you can't pay back the loan, you may lose your home to foreclosure.
A home equity line of credit (HELOC) acts similar to a credit card in that it has a credit limit, and you only pay back what you use. The credit limit is based on the amount of equity.
For example, if you get a HELOC of $45,000 but only use $15,000, you'll make payments just on the $15,000 (plus interest) not the full amount that you were approved for.
This option requires you to refinance into a new, higher-balanced loan where you then receive the additional funds in one lump sum.
For example, let's say your current loan is $145,000. You then refinance it into a new mortgage that now has a balance of $165,000. The $20,000 difference is what you'd receive in a lump sum, to use however you want.
Whichever option you choose, they all begin the same way --with an application. We've made it easy for you by offering a secure, online method of applying for a second mortgage. We're also available by phone and email to assist and answer any questions you may have about your loan options, qualifications, or the process. We aim to make this process as breezy and affordable as possible.
Start the process today and discover how easy it is to tap into your home equity to get the funding you need.