Mortgages & Home Equity Loans 2023, As a homeowner, if you’ve built up a significant amount of equity in your home, you might be able to use it to fund large expenses such as home renovations, college tuition, or even a big-ticket purchase like a boat or RV. Let’s take a closer look at how you can use your home equity to get your hands on some extra cash. Jobs Information
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Understanding Home Equity: Your home equity is the difference between the current market value of your home and the outstanding balance on your mortgage. It’s built in two ways – as you pay off your mortgage and as the value of your home increases due to the real estate market. Mortgages & Home Equity Loans 2023
Calculating Your Home Equity
HELOCs tied to your mortgage allow you to borrow up to 80% of your home’s value, while independent HELOCs allow you to borrow up to 65% of your home’s value. GMS Health Insurance Reviews (2023
What is HELOCs?
HELOCs come with variable interest rates, meaning the interest rate fluctuates with the prime rate. Repayment terms are flexible as you can pay back as much or as little of the withdrawn amount monthly. Mortgages & Home Equity Loans 2023
- The current value of your home
- The percentage that your lender permits you to borrow against your home’s value
- The balance you still owe on your mortgage
For instance, suppose your home is currently appraised at $700,000, and you still have a mortgage balance of $400,000. If your lender permits you to borrow up to 80% of your home’s value, you can potentially borrow up to $560,000 ($700,000 x 80%). Mortgages & Home Equity Loans 2023
To determine the amount you can borrow, you should deduct your outstanding mortgage balance from the potential borrowing amount. So, in this scenario, you can borrow up to $160,000 ($560,000 – $400,000). Mortgages & Home Equity Loans 2023
Pros and Cons of a HELOC:
Pros:
- Competitive rates: HELOCs typically have lower interest rates compared to personal loans.
- Easy access to funds: You can withdraw from your home equity as needed without applying for separate loans.
- Pay interest only on the amount used: Interest is only charged on the withdrawn amount, and once repaid, you no longer have to pay interest on it.
- Bad credit accepted: Approval for a HELOC may be easier since you have a mortgage and home to collateralize it, making it possible to be approved even with a lower credit score.
Cons:
- Variable interest rates: As the HELOC interest rate is based on the Prime Rate, an increase in the Prime Rate will cause the HELOC rate to go up.
- Risk of overspending: Accessing your home equity through a HELOC may be tempting, leading to overspending and accumulation of debt.
- Your home can be repossessed: Your home serves as collateral, and failure to repay the HELOC can result in your home being seized by the lender.
- Fees: Setting up a HELOC comes with fees, including the cost of a home appraisal.
How To Use Your Home Equity To Your Advantage:
- Tap into your home equity to gain access to more affordable rates and better terms for loans or lines of credit.
- Spend the borrowed money on something that will help you save or make more money in the future.
- Examples of smart ways to use your home equity include upgrading your kitchen or bathroom, installing a new roof or windows, adding a new addition or doing a complete remodel, consolidating debt, or adding a basement suite.
Cost of Home Equity
Additionally, legal fees for the services of a lawyer can run anywhere from $500 to $1,000. Being aware of these costs ahead of time can help you better understand the financial commitment of tapping into your home equity. Mortgages & Home Equity Loans 2023