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While many of us have been spending a lot more time at home, we’ve also been finding ourselves wanting to do more home improvement projects. Did you know you can leverage the equity in your home to help you get these projects done? Do you know how a home equity loan works?

Here are the basics:

Home equity loans allow you to borrow against the equity in your home. The equity in your home is the difference between what your home is worth and what you owe. For example, if your home is valued at $200,000 and you owe $120,000 on your mortgage, than you have $80,000 in equity. Most lenders allow you to borrow up to 80% of the value of your home. In this case, 80% of the equity in your home would be $160,000 and after you subtract what owe on your mortgage ($120,000) that would give you $40,000 in equity to borrow against.

There are two options for you when it comes to home equity loans- a closed end loan or a revolving line of credit. A closed end loan will give you the $40,000 as a lump sum that you borrow and pay back within a set period of time. The revolving line of credit will give you a line of credit up to $40,000 which you can use as you need to, but as with all revolving lines, payments are typically much smaller and take longer to pay off. However, many members find the line of credit to be helpful since they can use the line of credit as they need to and as they pay it down, they can use the funds available for other home improvement projects or a vacation from your home improvement projects. The funds are there to use for what you would like.

Many members find home equity loans helpful for consolidating debts. By consolidating multiple credit cards into one monthly payment, it makes it easier for the member to manage their money and they are typically able to pay the debt off much faster.

Using a home equity loan for any of the reasons above makes good sense because home equity loan rates are typically lower than personal loan rates and much lower than credit card rates. You will also want to check with your tax advisor because the interest you pay on the home equity loan may also be tax deductible.

Have more questions? We’re here to help. Please give one of our mortgage officers a call and we will help you navigate your options.