RB_NewsPostImage_UsingEquityThe equity in your home can help you pay for some of the larger expenses you may have.

It is generally defined as the “current value of the home minus the amount of the liens against it.”

For example, if your home is appraised at $500,000, and you have a balance on your mortgage loan of $200,000, you may have approximately $300,000 available in equity to use for various purposes.

There are two types of equity loans for you to consider:
A home equity loan is sometimes referred to as a second mortgage. It is a closed-end loan, with a specific amount and term established, giving you fixed monthly payments for the term of the loan. Typically, these loans have fixed interest rates and are fully amortized. A HELOC provides a line of credit you can draw upon, up to your maximum credit limit. HELOCs require monthly payments only on the amount you borrow. After a certain period of time, the draw period will end and then you will need to make payments on the remaining balance. During the draw period, you have the option to make withdrawals from your credit line using debit cards or checks, or you can access your loan by phone, online or in person at a branch.

A huge benefit of both types of equity loans is that the interest is usually lower than that of unsecured loans (e.g., credit cards, personal loans and personal lines of credit). Why? Because your home serves as collateral for the loan. Additionally, the interest you pay on these loans may be tax deductible. Consult your tax advisor.

Whichever type of home equity product you choose, your reason for borrowing money should be the key factor:
If you have a large, one-time expense or want to consolidate a specific amount of debt, a home equity loan is your best bet. That way, you can pay for the expense and not have the temptation of available credit remaining.

If you expect recurring expenses, such as payments made to contractors during home renovation, a HELOC allows you to “pay as you go.” You are only charged interest on the amount you use and you can spread out the use of your credit line. You also have the flexibility to use your credit line in the case of an emergency.

> Click here to contact a Home Equity specialist.

Sources: http://www.interest.com/home-equity/news/4-smart-moves-for-using-home-equity/, http://www.balancetrack.org/usinghomeequity/

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