So, you’ve been paying on your home’s mortgage for a number of years now. One of the biggest benefits of owning a home versus renting is that you earn equity with each payment. But what is home equity and how is it beneficial to you?
What is Home Equity?
Home equity is the homeowner’s interest in the home – or the difference between how much the home is worth and the liens on the property. There are a number of ways you can take advantage of the equity you have earned in your home through home equity loan or home equity line of credit. Since home equity loans are taken out against the equity in your home, their interest rate is typically much lower than other loans.
One of the most common ways to use a home equity loan is to make improvements on your home – especially larger projects such as a new roof, new siding, remodeling a room, adding an addition, and building a deck. A great thing about using a home equity loan to make home improvements is that, depending on the improvement you choose to make, you will likely receive most of that money back when you sell the home. Home improvements can also increase the equity in your home by raising your home’s value.
Home equity loans can also serve as a way to pay for college tuition and expenses. Since home equity loans typically have much lower interest rates than student loans, they can save money on the interest paid. Home equity loans do not, however, include delayed repayment periods like student loans, so you or your student will have to start repaying the loan immediately.
Again focusing on the low interest rates typical for home equity loans and lines of credit, these loans can be the perfect way to consolidate higher interest-rate debt. Combine credit card debt, auto loans, medical bills, and more into one lower monthly payment with a home equity loan.
Fund Large Purchases
Since unsecured loans, such as personal loans and credit cards, are known for having high interest rates, a home equity loan is a more cost-effective alternative to fund a large purchase. Home equity loans and home equity lines of credit can be low-rate ways to pay for a child’s wedding, purchase a new vehicle or RV, take an extravagant vacation, and more. Keep in mind, though, that you are putting your house up as collateral, so if you are unable to pay back the loan amount, you will lose your home.
Ready to Put Your Home’s Equity to Use?
If you’d like to learn more about home equity loans and lines of credit, or if you are ready to start your application, give our home equity team a call at 717-709-2580 to schedule an appointment to discuss your options today! You can also read more about home loans in the Home Loans section of our Learning Center blog.