RMLEFCU would like you to put your home equity line of credit (HELOC) to work! HELOC’s are a great way to consolidate debt, pay for college, or make home improvements. RMLEFCU even has the convenience of making your home equity line of credit available with a visa card, perfect for emergencies or long-term projects. Not sure about all the details concerning home equity? Read on to learn more!
First things first, we’ll start with explaining exactly what home equity is: put very simply, it’s the difference between the homes value and the amount you owe. When you’ve first purchased your home, this is a very easy number to figure out. All you have to do is take the original price of the home and subtract the amount that you still owe on the home. So if you bought a house for $200,000 and put a $10,000 down payment, your home equity is $10,000.
Home’s value – amount owed = equity
As time goes on, this number becomes slightly more complicated. Homes will usually appreciate in value in addition to the fact that you have paid off more of your mortgage. This results in much greater equity the longer you own your home. For example, after 5 years you’ve paid off $30,000 and your home has appreciated in value from $200,000 to $250,000. Your equity is now $80,000
Now that we know what home equity is, let’s look into home equity loans and lines of credit. This is a way to sort of re-mortgage your home and gain access to your equity, using your home as collateral.
There are a few key differences between a home equity loan and a home equity line of credit. A loan is almost exactly like a second mortgage. It is a one-time sum of money that is paid back over a fixed amount of years, with a fixed interest rate and the same payment each month. A home equity line of credit is much more like having a credit card from your home loan. There is a credit limit determined by your bank based off of your equity, and you can borrow as much or as little of that credit as you wish. Having borrowed, you can either pay off the debt, which returns your limit to whatever it was before, or you can continue to borrow until the limit. The interest rate can vary during the life of the loan, determined by your credit rating and payment history.