Your home is so much more than a roof over your head. As your home fills with happy memories and cherished possessions, it may be gaining equity — equity that you can borrow from to bolster its overall value or to finance other major needs. We’ll talk through the finer points of home equity, like what it is, how you can use it, and what you need to do before you apply.
What is home equity?
Your home builds up value over time, as its market assessment increases and you pay down your mortgage. When your home has amassed enough equity, you can borrow against it by getting a home equity line of credit.
What you can do with home equity
If you’re ready to tackle major home improvements, a home equity line of credit can help you fund those upgrades. It can also cover costly emergency household expenses, like repairing a leaky roof or replacing a broken HVAC system.
However, you’re not limited to putting the money into your house. You have options to suit your goals.You can use the equity in your home to cover big purchases unrelated to your house, such as financing a second home, funding a private education or covering other unplanned expenses. Just be aware that using the money in these ways won’t enhance your home’s value.
Advantages of a home equity line of credit
Depending on how much equity you have in your home, you may be able to borrow more money with a home equity line of credit than you could from a personal loan. And interest rates on home equity lines of credit are typically lower than other forms of credit, such as credit cards or personal loans, meaning you may pay less interest.
Before you apply
One of the perks of home ownership is that you can use the equity in your house to improve its overall value by making improvements or managing other expenses, as needed. But doing so isn’t without risk. Before you tap into your home’s equity, keep these three things in mind.
- Getting a home equity line of credit is a lot like applying for a mortgage: Interest rates can vary from lender to lender, the application process will include a review of your current income, debts, and credit history, you’ll need a home appraisal, and you may be responsible for paying closing costs.
- As you crunch the numbers, make sure you’ll be able to manage your line of credit repayment schedule and make your new monthly payment.
- Ask yourself if this type of account, rather than a credit card, personal loan, or other kind of financing, is the best fit for your needs. If you’re not sure, talk to a home mortgage consultant.We’re here to help you make informed decisions, that work for your unique situation.