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I'm Monique and I help millennials accomplish their real estate goals! Read more about me
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As a homeowner, you should have gained some equity in your home since living there and paying your mortgage down. Have you ever considered using this equity to finance some of your needs if you don’t have the cash flow?
A home equity loan or line of credit are two ways to get the necessary funds to finance an addition to your home, start your own business, consolidate credit card debt, or finance another major need. However, you don’t want to think of it as your own personal ATM … that could be dangerous!
As a reminder, you should always consult a financial advisor before considering the best course of action to take.
Here’s a brief rundown:
What’s a Home Equity Loan?
The equity in your home is basically the difference in the home’s market value and what you still owe on it. For example, a home that’s worth $550,000 but has a $500,000 mortgage balance has $50,000 in equity.
Therefore, a home equity loan (or term loan) allows you to take a loan amount based on your home’s equity plus other factors such as your income.
This loan is sometimes called a second mortgage. Upon the loan’s approval, you get a lump sum and must repay a certain amount each month subject to a fixed interest rate, just like a first mortgage.
The length of the loan is usually shorter than first mortgages – it can be from five to fifteen years.
What’s A Home Equity Line of Credit (HELOC)?
With a “line of credit,” you are approved for a certain credit limit based on your home’s equity. This loan functions almost like a credit card in which you can withdraw money when you need it over the lifetime of the loan, such as 10 years. You only pay interest on the amount you withdraw and not on the total amount approved.
Credit lines have variable interest rates rather than fixed rates so your repayments can change depending on the interest rate at the time you withdraw money.
You should carefully review all requirements, fees, penalties and how often the interest rate is adjusted since HELOCs can vary depending on the lender.
Advantages of These Loans
Disadvantages of these Loans
Other Important Factors
Please let me know if you have any questions about whether getting a home equity loan or line of credit is right for you. I can also be helpful in letting you know how much your home is worth to know how much equity you might be able to use. Plus, I have great lenders who can help you through the process of obtaining a line of credit.
Having a line of credit is not right for everybody. Be sure to reach out to me so we can talk about whether it’s a good option for you, how much equity you have and I can recommend lenders who can help you if you choose to move forward with this type of loan.
For tips and updates follow me on Insta @mvb.realestate
I got into real estate after I purchased my first home and felt completely lost. No one should feel that way... Read my full story
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