Home Equity Is The Value Of The" Unencumbered" Portion Of A Homeowner S Property

Category: Finance.

Many people have heard about an equity loan called a Home Equity Line of Credit but are not really clear about what they are. A HELOC can give people the flexibility and convenience that is similar to a credit card account, but with much lower interest rates.

They are a very common and popular type of loan than allows homeowners to draw on the growth in their homes and are usually referred to as a HELOC. While a HELOC can be considered a type of home equity loan, it does have some unique features that make it a bit different. Home equity is the value of the" unencumbered" portion of a homeowner s property. They also have some specific benefits that often make it the most attractive form of financing for people who have some growth in their homes. In simple terms, it is the difference between the fair market value of your home and the balance of any mortgages that have been taken out against the home. The value in a property will build up in two different ways given sufficient time. If you have a home with a fair market value of$ 220, 000 and the balance of all your mortgage loans is$ 120, then you have, 000 in total a home equity value of$ 100, 000 that you can borrow against to take out a borrowing off your house.

The first way that the value increases is when the balance of any kind of equity loan, such as a mortgage or HELOC, is reduced through regular payments. The unique thing about the HELOC type of home equity loan is that you can be approved to borrow up to the amount of equity in your home, but you are not required to take the amount out as a borrowing all at once. The second way is through the appreciation of property values which can be quite substantial over the course of many years. What this does is create a line of credit that you are able to draw against whenever the need arises. Many people take this approach when they borrow to do home improvements. The benefit of utilizing such loans is that you only pay interest on the portion of the equity line of credit that you have actually used.

Rather than taking out the whole$ 100, 000 up front for improvements and being charged interest right away, many homeowners only pay for improvements as they are completed. This provides people with the flexibility that credit cards offer, but at a much lower interest rate because the borrowing is secured against the home. Other homeowners use a HELOC equity loan when they need to purchase a big ticket item such as a car or if they need to cover some type of emergency. Most lenders provide easy ways for homeowners to be able to use their home equity line of credit. Nowadays, many lenders also provide a debit card so their customers can easily access the funds. Most provide a set of checks that can be used just like the checks attached to your checking account.

In addition to the lower interest rates and the convenience that lenders provide for these equity loan arrangements, the interest paid on a HELOC is tax deductible. This can provide additional savings and is one reason why many homeowners exclusively use their home equity line of credit for any financing needs they have.