One of the good things about having a mortgage is the ability it gives you to build up equity in your home. What's equity you ask? Well, you can click here or I can tell you really quick. Quite simply, equity is the amount of money you have already paid against the value of your home, and it is an easy value to determine with a little bit of math.
HOW TO DETERMINE YOUR EQUITY
The easiest way to find out how much equity you have in your home is to subtract the amount of your mortgage balance (look on your mortgage statement for UPB, Unpaid Principle Balance, or just Principle Balance) from the current value of your home. For example, if your home is worth $100,000 and you owe $40,000, then your equity is $60,000. In other words, as you pay down the principle on your mortgage, your equity increases inversely.
HOW DOES EQUITY WORK FOR YOU?
What makes equity special? Well, equity can actually work for you if you know how to do it. Many people borrow against it and use the money they take out to pay for things such as home improvements, investments, or even paying for a child's college tuition. Other people use the money to purchase additional properties and, in turn, make even more money. Nice.
Long story short, having a lot of equity in your property is a great thing, especially if you are all of a sudden in the need for cash. But how do you actually get the money out to pay for things? Well, that's where the HELOC comes into play.
HOW DOES A HELOC WORK?
Opening a HELOC (which stands for Home Equity Line of Credit) allows you to access the built up equity in your house for when you need a quick influx of cash (without having to refinance your entire mortgage). Let's say you fall and break your arm, or your daughter needs braces. Or maybe your car broke down and you need a few thousand dollars to pay for repairs. A HELOC can give you the cash you want (your cash) to pay for the things that NEED to be paid.
The HELOC you take out functions basically like a second mortgage on your home. Because of this, the interest rate you pay will be a little higher than that of your first mortgage. This is common, being that second mortgages are traditionally more risky from the point of view of the lender. Different factors can determine how much interest you pay, though. Quite simply, the rate you get is also mostly determined by the amount of equity you are cashing out. The more equity you take out, the higher your interest rate, and vice versa.
A LITTLE MORE INFO
Fortunately for you, there are quite a few different types of HELOCS available to you as a consumer and homeowner. Just like a traditional first mortgage, you can get a HELOC with a fixed or an adjustable rate. You can do it as a regular line of credit, or you can take out the entire amount in a lump sum. You can also do a bit of both. You can write checks from the HELOC (like a bank account) and some lenders will even grant you a debit or ATM card to use to make withdrawals too. You've got lots of options is what I'm saying.
In conclusion, whatever your particular needs may be, there is more than likely a HELOC out there for you. They can really help out in times of need, and the more people that are educated on their benefits the better.
If you would like to see if you qualify for a Home Equity Line of Credit, don't hesitate to CONTACT US and we will get back to you as soon as possible.
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