By Ken Brossman, Chief Sales Officer, Marine Credit Union
While some of us have put a spending freeze on our personal budgets, others are interested in making some home improvements or going back to school during this time off. Ever thought of a HELOC? A Home Equity Line Of Credit.
Let’s take a step back. What is home equity? Home equity is the difference between how much your home is worth and how much you owe on the mortgage.
Let’s look at an example:
|The day you purchase your home||Five years after you purchase your home|
|Purchase price = $180,000 – ($18K down payment)
Original mortgage amount = $162,000
Home equity = $18,000
|Appreciated home value = $200,000
Mortgage balance = $145,000
Home equity = $55,000
As you can see, the property’s equity increases as you make payments on your mortgage and the home appreciates in value.
You’ve earned that equity, so it is yours to use. A home equity loan or HELOC (home equity line of credit) allows you to borrow money and use your home’s equity as collateral. A home equity loan or line of credit can be used for a multitude of reasons including the following.
- Consolidation – Paying off your other debt to reduce the interest and payments.
- Home improvement projects – In the example above, 5 years into paying off your mortgage, you could take out a home equity loan to renovate your kitchen, increasing the home’s value.
- Emergency fund – Having a home equity line credit available, prepares you for a major home repair, an accident or medical bills. A nice feature of the HELOC is that if you don’t carry a balance, you don’t a have payment due monthly, but still have the security of the line of credit being available in case of an emergency.
- Education expenses – Home equity loans and lines can be used for educational expenses for you or your family.
- Tax Advantages – Home equity can be a great way to take advantage of potential tax advantages. Make sure to consult your tax professional to see if this would be a benefit that you may be able to benefit from.
Home equity loans or HELOCs can have significantly lower interest rates and lower payment amounts than other loans, so when considering taking out your next loan, see if this may be an option for you!