The equity in your home is the difference between the value of your home and the balance on your mortgage. For example, if your home is valued at $100,000 and you owe $50,000 on your mortgage, you have $50,000 of equity in your home.
When you have equity in your home, you have a valuable asset. Much like other assets, you can borrow against equity using what’s known as a home equity loan. In most cases, the loan has a low interest rate, allowing you to borrow for a low cost. Since interest paid on a home equity loan is tax-deductible, the loan becomes even more attractive.
A home equity loan provides you with a lump-sum of money that is repaid to the bank over a period of time. It’s important to know that, like other loans, interest begins accruing on the loan as soon as the bank issues the money to you. A home equity loan is different from a home equity line of credit which acts much like a revolving credit account.
If you’re looking for a home equity loan, you might be inclined to simply apply for one at the bank that holds your first mortgage. While it takes some of the hassle out of shopping around, this isn’t the wisest way to get a new loan. It’s very likely that another lender can provide you a lower interest rate. You’d never know if you didn’t shop around for loan quotes.
Because different lenders have different fees, costs, and repayment terms, it’s important to get quotes from several lenders. Each quote should include key information like interest rate, fees, and monthly payment. Getting free loan quotes helps you save money by giving you the information you need to make an educated decision about a home equity loan.