You’ve worked hard to own a home, and now you can get something out of it.
Home equity is the difference between your home’s market value the total amount you owe on your mortgage. For instance, if your home is worth $200,000 and you owe $150,000, you have $50,000 in home equity. This “second mortgage” is paid to you in a lump sum and can feature a fixed or adjustable rate over a set term.
Home equity loans can be used to help you meet your various financial goals. To name just a few possibilities:
- Do home improvement projects
- Take a vacation
- Save for college tuition costs
- Pay for a wedding
- Buy a new car
Home Equity Loan vs. Home Equity Line of Credit (HELOC)
A home equity loan is a second mortgage. You receive a lump sum and can spend up to that pre-determined amount. This amount is based on your income, your credit background, and the amount outstanding on your mortgage. These loans feature fixed or adjustable rates and typically have longer terms over a set period.
On the other hand, a home equity line of credit (HELOC) is similar to a credit card. Assuming you pay off your balance, you can repeatedly spend up to the limit. HELOCs often have lower interest rates than credit cards and can potentially have tax deductible interest.