HOME SWEET HOME EQUITY
One of the biggest advantages of home ownership is the equity you build in your home. The faster you pay your mortgage and build this equity, the better financial shape you'll be in. Equity can be a powerful tool to manage your finances.
Paying off your mortgage
During the first few years you make payments on your mortgage, most of your payment goes toward interest and not very much goes toward paying down the principal. The more you owe on the mortgage, the more interest you'll pay. So if you increase the amount you pay, more of the principal will be paid and less interest will be charged. You could retire your mortgage several years ahead of schedule if you just make one extra mortgage payment per year.
During the first few years you make payments on your mortgage, most of your payment goes toward interest and not very much goes toward paying down the principal. The more you owe on the mortgage, the more interest you'll pay. So if you increase the amount you pay, more of the principal will be paid and less interest will be charged. You could retire your mortgage several years ahead of schedule if you just make one extra mortgage payment per year.
Home equity credit lines
A home equity line of credit is a form of revolving credit in which your home serves as collateral. With a home equity line, you will be approved for a specific amount of credit that represents the maximum amount you can borrow. You pay a variable interest rate and have a minimum payment due each month based on the amount of the credit line you have used.
A home equity line of credit is a form of revolving credit in which your home serves as collateral. With a home equity line, you will be approved for a specific amount of credit that represents the maximum amount you can borrow. You pay a variable interest rate and have a minimum payment due each month based on the amount of the credit line you have used.
Once approved for the home equity plan, you will be able to borrow up to your credit limit at any time. You can draw on your line of credit by writing checks against it. You may be charged for a property appraisal, application fee and possibly other costs.
When you sell your home, you will be required to pay off your home equity line in full. If you are likely to sell your house in the near future, consider whether it makes sense to pay the up-front costs of setting up an equity credit line. Also keep in mind that leasing your home may be prohibited under the terms of your home equity agreement.
Home equity loans
Similar to a home equity line of credit, a home equity loan is backed by your home as collateral. Since such loans are considered more secure by lenders than unsecured debt such as credit cards, home equity loans offer more attractive interest rates than unsecured loans.
Similar to a home equity line of credit, a home equity loan is backed by your home as collateral. Since such loans are considered more secure by lenders than unsecured debt such as credit cards, home equity loans offer more attractive interest rates than unsecured loans.
A home equity loan is best utilized for a specific expense, such as paying college expenses, which you will be able to pay off over a shorter time period than your primary mortgage. If you're carrying a great amount of high-interest, unsecured debt, transferring it to a home equity loan can help you pay it off sooner, as well as provide tax advantages. The interest on up to $100,000 of a home equity credit line or home equity loans is tax-deductible.
Just remember that you've used your home as collateral. If you can't keep up with the payments, you may lose your home.
The costs of a home equity loan are similar to a home equity line of credit.