Home Equity Loans Tips

Home Equity Loans can help you get out of bad debt. Your home equity is the difference between what your home is worth and how much you still owe. Using home equity loans to pay off high interest loans faster and reach faster debt freedom is an enormous benefit. For example, you might have a credit card at 22% interest, pay it off with a loan borrowed on the equity of your home at 6% interest, and use the money saved on interest payment to repay your home equity loans. I guess you could call it, supercharging your debt pay down. Once your have paid off your home equity loans, focus on paying off you primary mortgage with your new surplus of funds. You home equity loans strategy has enabled you to pay off your debt and have more money to work with, once repaid. You should be able to double your regular mortgage payment every month without penalty. Speak to your mortgage lender to find out what you are allowed to overpay to accelerate you mortgage pay down.
So for example, say when you bought your house it was worth $100,000.00. You put down $25,000.00 and over the years you have paid $10,000.00 off the principal. Your existing mortgage balance should be $65,000.00. Call your bank to get the exact figure. Most lenders will send you an annual mortgage statement with this information. Incidentally, when you do receiver your mortgage statement, keep it! You might need it at some point to prove how much you actually owe on your home.

Ok, so right now the market says your house is worth $115,000.00. You might have called a local realtor to give you a CMA (comparative market assessment), house value assessment or maybe you actually paid to have a professional appraisal done by a certified real estate appraiser.

Here is our simple calculation: 

115,000.00 – Today’s value
- 65,000.00 – 1st mortgage balance outstanding
= $50,000.00 in home equity. Now you can use that equity to borrow against with home equity loans.

Home Equity Loan rates are sometimes higher than a mortgage rate but if you are using the loan to pay off higher interest rate loans such as credit cards, car loans or you are planning on using the money to make home improvements, then, home equity loans are a good idea and makes a lot of sense. The money you are not spending on interest will go towards principle and pay down the respective loans much faster. Also, you can benefit by the Renovation Tax Credit that may be available to you. I recommend speaking with a few financial planners as well as a few mortgage brokers or specialists to discus the best course of action for you. You want to get solid advice to “map out” you financial situation. Make a plan and stick to it.

You can also use your equity to secure a line of credit with your bank. Banks consider a home equity loan very secure and will offer you lower rates.

Caution is given here because should you default on your loan repayments the bank can foreclose on your home. Also, if a drastic dip in the housing market happens it could mean you owe more than what your home is worth.

Remember, only borrow what you know you can afford to repay. Proceed wisely!