Home equity and equity mortgages can be complex concepts for homeowners. However, knowledge about home equity can really help you make the most of your home.
First of all, what is home equity? Equity is an asset and comes from the homeowner’s interest in the property. To find out what your current home equity is, take the property’s market value and subtract from it your outstanding loan balance. The number you have is your equity: the amount of the home that you own outright. This number can change as you pay off more of your mortgage or as the value of your home increases.
Home equity is a very valuable asset. In fact, it’s many people’s most valuable asset. You can use your home equity in a number of ways, one of the most common ones being an equity mortgage.
Equity mortgages are most often used by applicants who have trouble meeting income requirements, are self-employed, or have poor credit. An equity mortgage allows potential buyers to use their equity in their current property in order to qualify for a mortgage. If you are using your home equity to purchase a new home, you are usually required to have a large down payment, usually at least 20-25%.
If you are thinking of applying for an equity mortgage, it’s best to discuss the matter with a mortgage professional before applying.
You can also access your home equity to pay for other expenses. Many homeowners take out a home equity line of credit in order to cover large expenses, such as renovations, education, or other large purchases. The benefits of a home equity line of credit include the ability to access your credit whenever you need and lower interest since your home is used as collateral.
Of course there are also many risks associated with using your home equity. The largest risk is the use of your home as collateral. This means if you are unable to pay back your loan, you could risk losing your home. Since credit is easily accessible when using your home equity, it’s easy to go overboard and end up in debt.
Your home equity is a valuable asset and should only be accessed in times of need. Those who use their home equity responsibly access their credit for a specific purpose and pay back the loan as soon as possible afterwards.
If you are considering using your home equity, contact one of our mortgage professionals today for a consultation!