What’s a Home Equity Loan?
Discover what it means to borrow against the equity in your home.
One of the most powerful financing tools available to homeowners is a home equity loan. A primary reason home equity loans, which are sometimes called second mortgages, are so popular is because the money can be used for anything. Here’s how these loans work.
Home equity loan basics
Your home equity is equal to the value of your home minus your home loan. For example, if your home is worth $275,000 and your mortgage balance is $150,000, you have $125,000 in equity.
When you get a home equity loan your equity is used as security for the loan.
Getting a loan
Getting a Consumers home equity loan starts with an application. One thing a lender will look at is your home’s current value. Typically, home equity loans are granted for up to 85% of the homeowner’s equity.
Other factors a lender will consider are your overall debt-to-income ratio and your credit score.
Why use a home equity loan
Home equity loans are popular because the interest rates are typically lower than those offered for credit cards or unsecured loans. And, they’re super flexible because the funds can be used for anything. Home improvements, a vacation, starting a business, emergency expenses, tuition, debt consolidation.
What to know before you get a home equity loan
It’s important to remember that a home equity loan uses your home as collateral. They only make sense if you’re confident you can pay back the loan. Defaulting on a home equity loan will have the same consequences as defaulting on your primary mortgage.
In addition to home equity loans that make funds available in a lump sum, a home equity line of credit (HELOC) gives you access to funds on a revolving basis. For example if you have a HELOC of $10,000, you can tap as much or as little cash as you’d like. If you tap $4,000 you’ll still have access to $6,000. Pay back the $4,000 and you regain access to the full $10,000 on your line of credit.
Interested in a home equity loan or HELOC?
Consumers’ lending experts are here to answer all your home equity loan questions. Call us at 800-991-2221 or apply for a home equity loan today.
Consumers helps thousands of members finance first and second homes, land home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.