How To Use Your Home Equity

What Is Home Equity?

Home equity is an interesting concept. This number is calculated by subtracting the amount that you owe on your mortgage and the amount of money your home is worth. For example, if you owe $400,000 on your mortgage loan and your home is worth $500,000, then you have $100,000 of equity in your home that you can use.

Since equity is calculated based on how much your home is worth, this means that it can increase and decrease depending on the market. Don’t fret - the market goes up and down, so sometimes you might have more or less equity in your home. You can also increase your equity by making mortgage payments and by making improvements to your home that make it worth more, like an addition or a remodel.

In order to learn how much equity you have in your home, you will need to get your home appraised by an official real estate appraiser. Then, you can calculate how much you have paid on your mortgage to find how much equity you have.

How To Use Your Home Equity

People can use their home equity for a variety of different large life expenses such as debt consolidation, home improvements, emergency expenses, and more. But what are the options for how to use your home equity? Read on to learn about the three most common ways to use home equity.

HELOC Loans
The first way to use the equity in your home is known as a HELOC loan or a home equity line of credit. This sort of loan works kind of like a credit card. You borrow the amount that you need, pay it off, and then you can borrow that money again. Often, these types of loans have lower adjustable interest rates than credit cards and you make payments based on the amount of credit you owe.

Home Equity Loans

Second, you can get a home equity loan, also known as a second mortgage. This is a fixed amount of equity that you take out of your home that is paid off over a fixed amount of time. Just like a standard mortgage, you have structured payments that are divided into principal and interest.

Cash-Out Refinancing

Finally, with cash-out refinancing, you refinance your home and receive a lump sum in cash that you do not have to pay back. These can sometimes have high closing costs and leave you with less home equity in the end.

Conclusion

There are many options for ways in which you can use your home equity, like a HELOC loan, home equity loan, or cash-out refinance. What would you use your home equity for?