Useful Tools, Loan Programs & Mortgage Articles

The difference between what you currently owe and the current market value is what is referred to as equity.  For example, if you could sell your home today for $400,000 and you owe $250,000 to the bank, then you have $150,000 of equity in your home.  Equity can be built as soon as you close on your home if you have obtained less than 100% financing or it can accumulate over time through property appreciation. Typically, homeowners just allow the equity in their homes to continue to build and treat it as a hidden savings account that will be tapped the day they sell their home.  However, some business savvy homeowners have realized that the money can be put to good use today by obtaining a home equity loan or line of credit. Common uses for equity loans and lines of credit include:

• Paying off high interest credit card debt
• Making home improvements
• Paying for college tuition
• Starting a new business
• Going on a vacation
• Investing in a 2^nd home or rental property
• Buying a new car or boat

 Here is a quick comparison of home equity loans and home equity lines of credit:

Home Equity Loans

• You borrow a set amount of money from the beginning in a lump sum.
• You pay principal and interest on the entire loan amount.
• You get a fixed rate and fixed payments.
• The closing costs are often paid for by the lender.
• The rate will likely be higher than your first mortgage.
• The interest is often tax deductible.
• Loan terms up to 30 years.

Home Equity Lines of Credit

• You are approved for a set amount of money and you only use what you need.
• There is no limit on the number of times you borrow against the line as long as you stay below your credit limit.
• You typically get an adjustable rate.
• You typically make interest only payments for the use of the money that you borrow.
• The closing costs are often paid for by the lender.
• The adjustable rate will likely be higher than your first mortgage.
• The interest is often tax deductible.
• Loan terms up to 30 years.
• A good source for an emergency fund, if set up in advance.

 Home equity loans and lines of credit are also commonly used as a second mortgage when purchasing a new home.  In order to avoid private mortgage insurance (PMI) which is charged anytime the loan amount is greater than 80% of the purchase price, it is often wise to get a first and a second mortgage simultaneously.  The second mortgage is commonly a home equity loan or line of credit.