Using your Home's Equity

If you need some extra money and you are a homeowner you may desire to tap into the equity that you have in your home for that extra money, however, you should know a bit about your options before you make the jump.

When you tap into the equity there are two different ways in which you can do this; either a home equity loan or a home equity line of credit. The home equity loan will give you the opportunity to borrow up to 80% of your equity at a fixed interest rate. When you are approved for the loan, the money is given to you at that time and you will have to repay the loan in equal monthly payments for the life of the loan. A line of credit gives you the option of borrowing just what you need and repaying it with a variable interest rate. This way you may get a line of credit for $30,000 and only borrow $5,000, and then you will have to re-pay the $5,000 in monthly installments, which can vary according to the interest rate and how often it is adjusted. Therefore, the amount you will pay back monthly will vary according to the interest rate when adjusted.

There are some great benefits to these types of loans, which include higher borrowing limits, lower interest rates, and tax-deductible interest. There are also a few things that are not as glamorous, which include the possibility of paying closing costs or other fees, the repayment of the outstanding balance if you sell your home, and since your home is being used as collateral for the debt you may lose your home if you default on the loan.

Before you decide, which is better for your situation you should consider how much money you need and how soon you need it. If you know the exact amount of money you need and wish to pay it back with a fixed rate of interest then the home equity loan could be the best, however, if you are not sure of the exact amount then a line of credit may be your answer.

Remember, do not just apply with the very first mortgage company you talk with, compare fees, interest rates and be sure to read all pertinent information before signing the dotted line.

Things you can buy with your home's equity:

• Large home improvements and remodelling projects
• Automobiles
• Boats
• Debt Consolidation

With interest rates on the rise, it may be a good idea to use home equity to pay for items you would normally finance through a dealer (like a car or boat). Interest rates through a dealer will be much higher than a home equity loan or line of credit.