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
The property’s equity increases as you makes 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 allows you to borrow money and use your home’s equity as collateral. A nice feature of the HELOC is that if you don’t carry a balance, you don’t a have payment due monthly. Home equity loans/lines of credit can have significantly lower interest rates and lower payment amounts than other loans. This loan or line of credit can be used for a variety of reasons including:
- Debt Consolidation to reduce the interest and payments.
- Home improvement projects to increase your home’s value, like a kitchen renovation.
- Emergency fund for a major home repair, an accident or medical bills.
- Education expenses for you or your family.
- Tax Advantages (Consult your tax professional to see if this would be of benefit to you.)