So, you own a home and you’re making your monthly payments. In doing so, you begin to build up your home equity, so much so, that now you’re being told you can take out another loan. Great!
Before you start to think another loan is the last thing you need, let’s take a look at what a home equity loan is, and how it could be of benefit to you.
What is home equity?
To better understand home equity loans, you’ll first need to know what home equity is.
Simply put, home equity is the percentage of your home that you already own. It grows as you pay down your mortgage and as your home increases in value.
To calculate home equity, you’ll find the difference between what you owe on your mortgage and the current value of your home.
What is a HELOAN?
A home equity loan, or HELOAN, is a type of second mortgage that uses the equity in your home as collateral. With a HELOAN, funds are received in a lump sum upfront and paid back in fixed installments over a predetermined period. Home equity loans are fixed-rate loans, so the interest rate remains the same throughout the term of the loan.
While you can tap into your home equity for a wide range of purposes, the main benefit of taking out a HELOAN would be to have cash in hand for big projects or large, one-time expenses. For example, you can use this money to tackle home improvements, pay off credit cards, build a pool, etc.
Just like with every loan you take out, there are pros and cons, so be sure to speak with your loan officer to determine the best course of action for you.
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