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Your home is a valuable asset, and one that you can tap into in times of need. A home equity loan can be a way to cover expenses like home improvements, and even things like college tuition and high-interest credit card debt. Here’s how it works.
What is home equity?
This is an easy one. Home equity is the difference between the current value of your property and what you still owe on an existing mortgage. For example, if your property is worth $300,000, and you still owe $100,000, you have $200,000 in equity.
What’s a home equity loan?
Home equity loans are a way to borrow money using the equity in your home as the collateral. The amount you can borrow is usually limited to 85 percent of your home equity, and the total amount of the loan is subject to other factors like your income and credit history, as well as the market value of your home. Borrowers receive the money as a lump sum, and the loan will usually have a fixed interest rate.
Are home equity loans different than a home equity line of credit?
Yes! A home equity line of credit, or HELOC, is another way to borrow using the equity in your home as collateral. However, with a HELOC, home owners have the ability to borrow multiple times from the maximum amount available, and interest rates are usually adjustable. Home owners can typically borrow up to 85 percent of the home’s appraised value, less the amount owed on the mortgage. It works a little bit like a credit card.
Can home equity loans be used to consolidate debt?
High-interest debt, like credit card debt, is a big problem for many Americans; the average U.S. household is carrying around $8,600 in credit card debt and people are losing sleep over it. But the good news is that home equity is at an all-time high — and Mr. Cooper estimates that 32 million consumers have both high interest debt and home equity. Cash-out refinancing could help you use your home’s equity to take cash out and apply it to consolidating your high interest debt.
Your best bet is to get in touch with a seasoned mortgage professional who can help you understand and weigh your options. Here’s how to reach out to Mr. Cooper today.
