Two Ways to Borrow on Your Equity:
Home Equity Loans and Home Equity
Lines of Credit
The equity in your home is calculated by determining your home's current value minus the amount you owe on your mortgage.
A Home Equity Loan is a second loan you take in addition to your original home loan. The loan amount is determined by the equity you have in your home, the lender's requirements, and how much you wish to borrow. You receive the amount in one lump sum and the lender bases your payments on the entire amount of the loan.
- Home equity loans are a good choice if you know exactly how much you need and want to know exactly what your payment will be every month.
A Home Equity Line of Credit (HELOC) works like a secured credit card, but the lender determines your credit line and period of access based on the equity in your home, as well as their other lending criteria. You don't have to receive the entire amount at closing. Instead, you have a credit line you can draw upon as you need, up to your credit limit, for the duration of the loan. Your payments are determined by how much of the credit you're using each month, and as you pay down the balance, you have more credit available, up to your credit limit.
- HELOCs are a good choice if you want to draw on the funds as you need them, and make payments only on what you've drawn upon.
Borrowing against the equity in your home may enable you to deduct the interest from your taxable income. Check with your tax advisor to see if you qualify.
