Everything You Need to Know About Home Equity Loans and Lines of Credit
By Scott Morris
So you bought a house, now what? Are you stuck paying a mortgage and never reaping the rewards? Thankfully, no! As you make payments toward your house, you begin to build equity that can be tapped in the form of home equity loans and lines of credit. This allows you to make use of the financial side of your home without having to sell. Here’s everything you need to know about home equity and how it can work for you.
What Is Home Equity?
Put simply, home equity is the portion of your home that you own. It is the market value minus any remaining mortgage or loan balance you carry on the home. For example, a home with a fair market value of $750,000 and a remaining mortgage balance of $200,000 has a home equity value of $550,000. That amount is what you can borrow against using a home equity loan.
What Is a Home Equity Loan?
Home equity loans are also called second mortgages because they operate similarly to a mortgage. You receive a lump-sum payment based on the equity value in your home and it’s paid back over a set period of time. The payments will be fixed over the life of the loan, consisting of both principal and interest, just like a conventional mortgage.
A home equity loan can also come in the form of a home equity line of credit (HELOC). HELOCs offer a revolving line of credit against the equity value of your home, as opposed to the lump sum offered in a traditional home equity loan.
How Can it Be Used?
Both home equity loans and HELOCs can be used in many ways, including:
Paying off credit card debt
Remodeling or making major repairs to your home
Paying off student loans
Paying off medical debt
Funding short-term cash flow during a market downturn
Funding vacations or sabbaticals
Preparing for the birth of a child
Education funding
Paying for a wedding
Down payment for a second home or investment property
A home equity loan can be the perfect option to fund these goals and more.
Benefits of a Home Equity Loan
The benefits of a home equity loan or HELOC can be far-reaching if used in the right way. They can provide flexibility and real-time access to the value you’ve been diligently building in your home.
Keep in mind that there are very real disadvantages to consider as well. Namely the fact that your home is used as collateral for the loan, and it can be taken by the bank if you fail to pay back what you’ve borrowed. As with anything, it’s important to thoroughly review your finances before taking on any loan.
How We Can Help
At SRM Real Estate Group, we offer both home equity loans and HELOCs. If you're thinking about borrowing against the equity in your home and would like to explore our HELOC options, we would love to hear from you!
Reach out to us at 818-262-3695 or connect@srmrealestategroup.com or you can schedule a no-obligation introductory call online. We can’t wait to connect with you!
About Scott
After his son’s Type 1 diabetes diagnosis, Scott’s life took on a new meaning. He created a purpose-driven business model to put people before profits. With each successful closing, he donates a portion of his earnings to his client’s preferred charity and to the Juvenile Diabetes Research Foundation. Scott’s passion and innovative approach to real estate is found in the promise he makes to every client: when you partner with the SRM team, you’ll save money, time, and together we’ll change lives.
Scott Morris is the Founder and CEO of SRM Real Estate Group, a Los Angeles real estate and mortgage company that does things differently. To learn more about Scott, connect with him on LinkedIn. You can also watch his latest webinar to find out how to be the smartest seller on your block.