| If you have owned a home for some time, you | | | | value of your home. |
| probably have amassed a nice nest egg of equity, | | | | So, how do you access the equity in a home? There |
| particularly if you owned it through the recent price run | | | | are a number of ways, but many people choose to |
| up. So, how do you use it for practical needs? | | | | use a home equity line of credit. That is a mouthful, so |
| The equity in a home simply refers to the difference | | | | most refer to it as a "HELOC". As the name suggests, |
| between the value of a home and the amount you | | | | it is a line of credit based on the value in your home. |
| owe on it. An example always helps, so let's use a | | | | Using our example above, a lender would verify you |
| simple one. Assume you purchased a home for | | | | have $100,000 in equity and give you a credit line for a |
| $150,000 in 1990 and put $15,000 on it. As the years | | | | percentage of the equity. |
| passed, the home appreciated in value and you paid | | | | The percentage of equity that can be used depends |
| down the mortgage. Today, the home is worth | | | | on the lender. It tends to be capped at 80 percent of |
| $200,000 and you owe $100,000 on it. Your equity is | | | | the total value of your home. In the example above, |
| $100,000, the value minus the remaining amount you | | | | the credit line would be for $60,000 since 80 percent |
| owe. | | | | of $200,000 is this amount. That being said, lenders |
| Equity in a home is a beautiful thing. Why? Well you | | | | have all types of programs. |
| can use it to fund those things in life that you just have | | | | You can expect to pay a bit more in interest on your |
| to do. If you want to improve your home, you can use | | | | credit line. The loan is a second on your home, meaning |
| the equity to do it. Most people seem to want three | | | | that it is more risky than the original loan. With risk |
| types of improvements - a new kitchen, new | | | | comes increased borrowing costs, in this case a higher |
| bathrooms or a new bedroom or two. All of these can | | | | interest rate. You should expect rates to be a point or |
| be paid for using your home equity. The real beauty of | | | | two higher than what first mortgages are going for. |
| taking this step is the improvements also add to the | | | | |