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Six Basics You Need to Know
About Home Equity

home equity articles and tips

 

Part of the responsibility of being a homeowner is managing the equity. However, many new homeowners may not know a lot about the subject. To help, below are six basics you need to know about home equity.

1. The Definition of Home Equity

Home equity can be defined as the value created by funds paid towards the cost of a home. Figuring out the cash value of your home’s equity isn’t too difficult. All you usually have to do is subtract the amount you have already paid on your mortgage from the current market value of your property

2. How to Increase Your Home’s Equity

To increase your home’s equity, you simply need to continue making payments on your mortgage. To figure out your home’s market price, obtain an appraisal. You can then use it to calculate your equity. However, there may also be other factors in play. For example, a second mortgage or a lien against your home must also be subtracted from the market price.

3. What Is a Home Equity Loan?

A second mortgage is also sometimes referred to as a home equity loan. Once homeowners have built up equity, they have the option of accessing the value accrued through a home equity loan from a company. Despite the fact these loans access a home’s equity, they do usually allow the homeowner to continue living within the property.

4. What Is a Lien?

A lien can also decrease a home’s equity. A lien can be defined as a kind of hold that is placed on person’s property as a form of collateral. For example, a home equity loan may place a lien on the property. This helps insure that the lender receives something if the loan defaults.

5. What Is a Home Equity Loan Used For?

Home equity loans are conceptualized as a way to take advantage of equity while a person is still alive. They are often used as a kind of retirement income. However, others may use the equity to pay for a child’s college education or to make business investments.

6. Equity Line of Credit

In addition to a home equity loan, individuals also have the choice of obtaining a line of credit to access the value of a home’s equity. This line of credit will be equal to 75 percent of the house’s market value minus any remainder on the mortgage and any liens.

Managing your equity is an important part of the responsibility of being a homeowner. Don’t make any uneducated decisions in regards to accessing your home’s equity.

Informational credit to Mortgage Centre.