Home Equity: What Is It and How do I Use It?

You may have heard that as a homeowner, building equity can be one of the smartest decisions you can make. Home equity is the difference between your home’s value and the amount you owe on your mortgage. It is like the interest that your home accrues over time. Whenever you reduce your mortgage balance and increase the value of your property, the equity increases. If the value of your home reduces at a faster rate than the one you are using to decrease your mortgage loan balance, your home equity automatically starts dropping.

It is easy to borrow against your home equity. With it, you can access two types of loans; home equity loans and home equity lines of credit (HELOC). Let us help you understand what they are and how they work.

Home Equity Loans

Some people will call a home equity loan a second mortgage because the two work in the same way. You will get the loan at one time; in a lump sum. Then, you have to repay it in several equal monthly installments over the loan’s life. It can range anywhere from five to fifteen years.

Home Equity Lines of Credit (HELOC)

Getting a HELOC loan is like using a credit card. It allows you to have a line of credit where you can get finances whenever you want for several years (draw period). You will be required to pay interest during a specific amount of years. The end of the draw period will mark the start of the repayment period. Then, you will begin paying back the principal, plus the interest accrued. It will also be impossible for you to borrow against your property.

When deciding on whether you should take a home equity or HELOC loan, you should always consider the terms of each. Which one best suits your needs? Some of the things that you can consider include how you want to access your loan and the payment structure. Feel free to use your money in a variety of ways regardless of the type of home equity loan. Here are some that you can think about:

Paying for Education

Your education and that of your kids is critical. With it, you can easily get better-paying jobs. It also makes it possible for you to expand your knowledge base. Getting a home equity loan or a HELOC can be an excellent option for you. You can comfortably get the money you require to pay the fees. Moreover, the loans might have lower interest rates when compared to student loans, and it is an added advantage for you.

Emergency Funds

The future is unpredictable. You might find yourself in a situation whereby you need finances but cannot raise them. You may be fired or have large medical bills that your salary cannot cover. Then, a HELOC or home equity loan will come in handy.


You can also use a HELOC to invest in a business of your choice. Pick it wisely so that the returns can be more than the loan amount. For instance, you can invest the money in real estate. Then, you will be certain that you will enjoy the profits for a lifetime.

Home equity allows you to benefit from your home’s value. You can get a home loan that can help you to either pay for your education or invest in your dream business. With the money, you can also have an emergency fund for use whenever you are in a financial fix. Visit our website to find out more about home equity.

Get a personalized loan consult with one of our experts today.