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Put simply, home equity is the percentage of your home that you own. It is the difference between the actual value of the home, and how much you owe on your mortgage. Now anyone that knows anything about homes knows that home equity is a great thing, and definitely something you can use to your advantage. Want to know how? Keep reading on and we’ll break it down and tell you how you can use it to your benefit.

HOW CAN I FIND OUT MY HOME EQUITY?

The best way to find out how much home equity you have is to first, get a home appraisal done. How this works is, an appraiser will come in and do an analysis and let you know exactly how much your home is worth. For example, if your home is appraised for 320,000, and you have 200,000 left on your mortgage, your home equity would be the value of these two numbers subtracted. In this case, your equity would be 120,000. This method is the best way to go.

HOW CAN I USE IT TO MY ADVANTAGE?

There isn’t just one way that you can use home equity to your advantage. With so many methods, feel free to do more research before making your decision. Below we have detailed all of the different methods.

Home Equity Loan – This is also known as a second mortgage because you’re borrowing against your equity. With this, they give you the money in a lump sum, and you will continue to make regular payments on your mortgage. Don’t go too crazy with borrowing though, because lenders do highly recommend that you always maintain 15-20% ownership on your home. This is a very popular method with how people use home equity to their advantage.

Home Equity Line of Credit – So this method works a lot like a credit card. Just like with the home equity loan, you are still borrowing against the loan, but the way you borrow is a little bit different. There are two periods with this loan: the draw period and the repayment period. Just like a credit card, you have a limit that you can borrow. During the draw period, you can spend up to the limit. After a certain time, which the lender will define for you when you get the loan, you enter the repayment period, which is when you have to start paying it back. People use this method a lot to do home improvements, or to pay their children’s college tuition, medical bills, etc. This method also tends to have low interest rates, so sometimes it’s a better move than opening up a regular credit card; not to mention that it is also much easier to qualify for.

Cash-out Refinance – This is different from the previous methods because it is more like refinancing, so instead of a second mortgage, this one replaces the old one, usually with better interest rates. This method is more for people that 1, want to refinance and 2, want their equity in cash. When filing for this type of loan, you choose the cash out option, and this ensures that your lump sum is in cash. You can borrow up to 90% of your equity.

Upgrade to a Bigger Home – So you want to upgrade. Whether your family is expanding, or you’ve scored a raise, this is a great way to do it. This is the most common way that people use their home equity to their advantage. The difference between the sale of the home and your mortgage remainder comes back to you as a profit. So let’s say you’re selling the home for 400,000 and you have 50,000 left on the mortgage. You use the 350,000 to pay off the rest of your mortgage and the remainder as profit to put towards your new home!

Overall, using your home equity is a great advantage to you, but please be advised that if you do take out a loan on your equity and you’re unable to make the payments for it, you risk the lender foreclosing/repossessing your home, so factor in all of this prior to making the final decision. Otherwise, if you have other questions about home equity, reach out to your lender or one of our experienced Premium agents to help you figure out the best options for you!