If you’ve been paying your mortgage for a while, you’ve probably built up some equity in your home. Maybe you’ve heard of a home equity line of credit or home loan, but you might not understand why it would be an option for you. Here’s an intro to home equity and how you can use it to finance your life events or use it to remodel or renovate your California home.
What is Home Equity?
If you’ve wondered what exactly is equity in a house, let us clarify. The definition of home equity is the difference between how much your home is currently worth (or its market value) and how much you still owe on your mortgage. Here’s a quick example to help you figure out how much home equity you have:
Your Current Home Value: $200,000
Minus Your Current Mortgage Balance: $150,000
Equals Your Home Equity: $50,000
How You Can Use Home Equity
Mortgage lenders allow you to borrow against your home’s equity, using your home as collateral, which is why they are sometimes referred to as second mortgages. The general guideline is that you can borrow up to about 85% of your home’s value, minus what you still owe on your house. The equity that you’ve built up in your home can be leveraged for a variety of purposes, including:
- Home improvements
- Debt consolidation
- Education and College
- Major life events
The Benefits of Using Home Equity to Finance Projects
Some benefits of using your home equity to finance other projects include:
- HELOCS and Home Equity Loans usually have a lower interest rate
- Home Equity loans are typically easier to qualify for if you have bad credit
- Home Equity loans offer a large sum of money to a homeowner and the interest costs may be tax-deductible
There are two different ways you can access your home’s equity, either as a home equity line of credit or a home equity loan. Read our post on HELOCs vs Home Equity Loans
for more information, or contact our home loan experts
in Pasadena, CA for a free consultation.