Home Equity - FAQ

Something many homeowners don’t realize is that there can be a tremendous amount of money locked up in the equity of their homes, money that can be freed up during the lean years. This can be especially useful when you want to send a child off to college, or you face an unexpected expense such as medical costs or home repairs. In this article we’ll answer a few of the most frequently asked questions about home equity, and how it can be used to help you get through demanding times.

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What Is Home Equity?

This is simple, really. Let me explain with an example:

A house has a market value of $300,000. The homeowner has $100,000 left to pay on the mortgage. The equity of the house is simply the difference between the value of the property and the value of the mortgage. In this case the home equity would be $200,000 - essentially, the difference between the assets and the debt on the house.

How Can This Help Me?

If you have a decent amount of equity locked up in your house you can use it as collateral on a home equity loan (also known as a second mortgage). You’ll guarantee the loan with the equity on your home. Using a home equity loan you’ll be able to access much greater funds than if you were to apply for a regular loan.

Isn’t It Risky?

Well, there is a level of risk with every loan. If you can’t afford to make the repayments on the loan then the lender could foreclose and take your house as reparations. Clearly, despite the fact that a lender may offer you a loan of anything up to 100% of your equity, you should only borrow what you can comfortably afford to repay.

So, if you are a responsible borrower - and you are certain that you will be able to honor the repayments - you may find that a home equity loan allows you access to funds when you need them the most. Why not give it a go?