Home Improvement Loans

There are many advantages to being a homeowner, but one of the biggest benefits is probably the equity you build on your home. If you have a lot of home equity, you can use it for various expenses. That particular expense can be anything from a large addition to your house, paying off your existing debts, or paying your kid’s tuition. Whatever the reason might be, you can use your home equity to pay it off.

What is Home Equity?

The difference between the total cost of your home and the remaining debt on your mortgage is your home equity. Each time you make a payment on your mortgage, the equity increases. It can also increase if the value of your house increases. But on the other side, your home equity could also decrease if the property values drop. If you are hit with an unexpected home repair, home equity can be a blessing because you can tap into it via home improvement loans.

How To Calculate Your Home Equity?

If you aren’t sure how to calculate your home equity, here are some easy steps to follow:

1. Find out your property’s estimated current market value. What you paid for your house a year ago or even a handful of years ago probably won’t be its current market value. If you are just starting to explore your home equity options, then there are free online home price estimators you can use to get an idea of its current worth. However, a licensed appraiser would be able to give you the most accurate estimation.
2. Subtract from your mortgage balance. Once you have the accurate value of your home, check your latest mortgage statement. Subtract the amount you still owe and any other home-related debts you have. Whatever is left is your home equity.

How To Use Your Home Equity?

There are many ways to tap into your home equity. Below 

• Home equity loans: A home equity loan is a second mortgage you can get for a fixed amount at a predetermined, fixed interest rate. The amount you can borrow is based on the equity of your home, and the funds you receive can be used for any purpose. This option is ideal if you have a specific large expense or debt that needs to be paid off. The fixed monthly repayments are predictable and won’t throw you off of your finances. If you use the funds from a home equity loan to remodel your home, the interest might even be tax-deductible.
• Home equity lines of credit: A home equity line of credit is secured by your house and is similar to a credit card. There will be a credit limit but other than that, you can withdraw as much during the initial draw period which is usually up to 10 years. Once the draw period is over, the remaining interest and the principal balance will be due. As you pay down the principal, the credit line will go back up and can be used again.
• Cash-out refinancing: A cash-out refinance will replace your current mortgage with another, bigger loan. This loan includes the balance you owe on your existing mortgage and a share of your home’s equity, withdrawn in cash. This can be used for any purpose, there are no restrictions on the usage. Unlike a home equity loan, a cash-out refinancing might even allow you to negotiate a lower rate on your main mortgage, depending on the market conditions, and reduce the term so you can repay it sooner.

Conclusion

At the end of the day, only you can decide how to access your home equity and where to spend it. Whatever decision you take should be based on your financial circumstances. It’s not a decision that should be taken lightly, so be sure to research as much as you can to make sure you have all the details figured out. Weigh all your options before settling on anything. If you are having trouble figuring out what would be best for you, speaking with a mortgage expert first might be best. We hope this gives you a nudge in the right direction to research more.

For more information on things to research before purchasing a home, click here.

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