Home Equity Loans
There almost always comes a time when you’re ready to fix up your home - new floors, a new stove, maybe even a new roof. When you improve your home, you are making an investment in the property. If you can’t pay cash for the improvements, you should strongly consider using a home equity loan.
Home Equity Loans
A home equity loan borrows money from the value you already have in your home. If you’ve been paying on your mortgage for years, and your home has increased in value, you likely have a significant amount of equity. To arrange a home equity loan, a bank helps you pull up to 100% of your home’s value to be used for any purpose - including home improvements.
As a home equity loan is secured by your actual home, it is often called a second mortgage. The difference between the amount you owe on your original mortgage and the appraised value of the home is the equity you have in the home.
For example, if you put $20,000 down on a $200,000 home, you automatically have $20,000 in equity. Over the years, you pay on your mortgage and buy yourself another $30,000 in equity. The value of your home increases by $100,000 during the same period, netting you that full amount in equity. At the end of the time frame, your equity is a total of $20,000 + $30,000 + $100,000 = $150,000. A home equity loan lets you borrow some or all of that $150,000 at a very reasonable rate on either a revolving basis or for lengthy terms.
Using Home Equity Loans
There are many uses for home equity loans, but the most common are home improvements, debt consolidation, travel, and education expenses. Home improvements are the most natural use of the funds. You have access to a large loan with a very low interest rate thanks to the equity in your home. Turning that money around to improve your home can actually bring you more equity and help you pay off the loan quickly.
Improve your home with a home equity loan. Then, if you were to sell or refinance, you might even be able to pay off the home equity loan as soon as the improvements were complete thanks to your improved appraised value - a very nice perk indeed.