When you're struggling financially, it can be difficult to see the light at the end of the tunnel. Luckily, if you own your home, there is a way to get the cash that you need to get your head above water. However, before you to decide to see a home equity lender, it is important that you have the facts first.
Understanding What Equity Is
First off, you need to understand what the term home equity actually means. It sounds like a complex term, but it actually is rather easy to comprehend. The equity is the difference between what is owed on your and the market value of your home. So, if your home has a market value of $350,000 and you still owe a mortgage balance of $250,000, then your home has a $100,000 in equity.
The Difference Between Equity Loans and Lines of Credits
When you see a lender about borrowing against your home's equity, there are two ways that you can go about doing it. You can either take out a home equity loan or a home equity line of credit. These are two completely different things and it is important that you understand the difference so you can determine which one is best-suited for your individual situation.
- Home Equity Loan – This is when you receive a lump sum of money once you sign the papers. You will then be required to make payments for a certain period of time as outlined in your agreement. The entire loan will be submit to a fixed interest rate.
- Home Equity Line of Credit – This is when you will be approved for a certain amount of money and are given the option to borrow against that money whenever needed. Your payments are subject to change based on variable rates and changes in balance.
Use Your Equity Wisely.
Since your home is being used as collateral for your loan or line of credit, you need to make sure that you only borrow the amount that you need. In fact, rather than focusing on the amount that you borrow, you should focus more on why you're wanting to borrow money. For example, it isn't a good idea to take on a loan or line of credit on your home if you're wanting to go on a shopping spree or vacation. However, if you're looking to make home improvements, go back to college, or consolidate or pay off your debts, it may be a wise decision to consider speaking to a home equity lender about your available options.Share