Home Equity Loan Guide MortgageloansNJ.com
A home equity loan is also known as a second mortgage, basically it is a loan based on the home's current market value and the outstanding mortgage balance. The difference is the credit line (equity) you have access to.
For example if you have a 100,000 mortgage and put down $10,000 as a down payment, you would automatically have 10% equity. If your home value went up to $125,000, you would then have 28% equity. Meaning you could borrow up to $35,000 of your home equity available.
Learn more below and remember to request a consultation with one of mortgage brokers to review your options.Being smart with your home equity options:
Even though a home equity may seem like easy credit, remember that you must be smart with the money available to you through one. The ultimate goal is to own your home and having too many home equity loans can lead to financial problems in the future. That being said, home equity can be a useful leverage tool when used properly. Remember a home equity loan is a second mortgage, which means if you default on a home equity loan, a lender can foreclose on your home. Please make sure to speak with an expert before making any home equity loan decisions.
Evaluate Your Options – Home Equity Loan (Fixed Rate) versus Credit Line
Home equity loan Explained
- Lump sum payment
- Paid off over a set period of time, typically 5 to 15 years.
- Cannot borrow anymore
- Fixed Rate
- Great for a debt consolidation of credit cards (Please do not fall into the trap where you consolidate your debt and then still use your credit cards freely. You will just yourself in the same position as before you received your home equity loan.)
Home Equity Line of Credit Explained
- Take only the money you need
- Works like a credit card
- You can borrow money again after you pay it back
- Great way to cover the unexpected expenses
- Adjustable Rates
Our mortgage brokers can help you decide which option is the best one for you based on what you plan on using the money for.
Here are a few tips you can use when reviewing your home equity options.
- Do not borrow more than your home's value.
- Use your line of credit only when TRULY needed, its not free money.
- Always keep some available for the unexpected.
- See if you can afford the new debt before taking out equity.
- Use equity to increase the value of your home or to fund a child's education, not for vacations or unnecessary purchases.
- Speak with a mortgage broker who can evaluate your income, debt, and other factors to see if a home equity loan is feasible for you.
- You should use home equity for debt consolidation, home improvement, or to cover any unexpected expenses.
- Show discipline and diligence with your purchases, your home is your collateral for any home equity loan or line of credit.