Frequently Asked Questions about Great Home Equity Loans

Here are the most frequently asked questions about great home equity loans.

What is home equity?

Home equity is the dollar value of the portion of your home that you own. To calculate home equity, take the present value of your home and subtract all outstanding loans against it. For instance, if your home is worth $300,000 and you owe $230,000 on your mortgage, you have $70,000 of equity.

What are home equity loans?

Great home equity loans use your home as collateral to convert equity into cash. Home equity loans are secured loans that usually have very reasonable interest rates. They can offer homeowners a cheap source of cash for large expenses.

How is a home equity loan different from a home equity line of credit?

Great home equity loans and home equity lines of credit (HELOCs) can both convert home equity into cash, but they differ with regard to distribution and repayment of the funds. With a home equity loan, you receive the full amount of your loan up front. You then make regular payments of principal and interest on the loan for the duration of the specified term. With a HELOC, you use home equity to qualify to borrow up to a certain limit. HELOCs function much like credit cards in that borrowers can use as much or as little of the funds whenever they need. Repayment of a HELOC usually involves a minimum monthly payment, but borrowers are free to pay more than the minimum if they wish.

How do I increase the equity in my home?

Home equity can increase in two ways. First, you can pay down your mortgage. This lowers the amount of debt outstanding against the house, which increases equity. Secondly, your home could appreciate in value. With a higher market value, your home would qualify you for larger great home equity loans.

How do I find out how much my home is worth?

Before issuing great home equity loans, lenders will appraise the property to determine its market value. If you would like to know your home's value before you apply, you can have an independent appraisal done. You may also be able to get a rough estimate of your home's value by using an online appraisal calculator.

How much of my home's value can I borrow?

This will vary by lender. Some lenders will issue great home equity loans of over 100% of the home's value, while others may limit the loan to around 80%. Borrowers with the best credit will receive the loans with the highest percentages of their homes' values. Talk to your lender for more information.

What kinds of things can great home equity loans be used on?

Borrowers are free to use home equity loans anyway they choose. Some homeowners apply the money toward renovations or remodeling, others pay for their children's college education, and some may use the money to buy a new vehicle. As long as the loan is repaid as agreed, there are no restrictions on how you can use a home equity loan.