What is Home Equity?

Georgia has had a long history of beautiful homes of varying style. Whether looking for historical plantations, quaint southern villas, condominiums, or a traditional family home, Georgia has the variety to please. With the current market prices, now may be a great time to consider capitalizing on that home equity. Home equity is basically the difference between the value of your property and the balance you owe on your mortgage. If you took out a $200,000 mortgage and your property is has appreciated to a value of $225,000 while only owing $75,000 more on the mortgage, your built equity is $150,000. This money, if selling the property, is like money in the bank.

Using Your Home Equity

Home equity has several uses besides banking the money. If looking at paying for college tuition, building an addition onto your home, or looking at investing in other Georgia real estate, lenders allow you to loan money on account of your home equity. These home equity loans usually offer a better value than taking out a typical second mortgage. There are two basic types of home equity loans: a closed home equity loan and a home equity line of credit or HELOC home equity loan. A closed home equity loan is much like your conventional first mortgage. The lender gives the money up front with the expectation of monthly payments on the principal and the interest. A HELOC, on the other hand, opens up a revolving line of credit. It works much like a credit card, except on a larger scale without the compounding interest. A limit is set (usually the amount of equity you have accrued) in which you can borrow funds at any time during the drawing period. Payment is only due for the money you borrow. When comparing a line of credit vs home equity loan, a HELOC is usually the more popular choice. It gives the borrower the power to dictate his own cash flow.

Benefits Associated with Home Equity Loans

Home equity loans have become a popular choice because of the associated benefits. These types of loans are especially helpful for those who look to invest in other properties. While the interest rates are usually set around the prime rate (a HELOC often times has a slightly higher rate than a close home equity loan), home equity loans offer interest that is tax-deductible. Remember that a home equity loan is borrowed with the your home as collateral. If you happen to default on your payments, you may run the risk of foreclosing. When looking at a type of second mortgage for whatever the reason, home equity loans are often a practical tool. Check out several different lenders as you may be able to get a better rate.

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