Home Finance Debt Options
Home Equity is the value of your home or property that is above and beyond what the appraised value is. An example of this would be if you had your home professionally appraised at $250,000, but only owed $175,000 on the mortgage for your home, you would have $75,000 in equity in your home which could be used as collateral for receiving a loan.
If you are having trouble with debt and considering using your home to consolidate debt or finance paying it off, there are a few options to choose from. Below are descriptions of three of the options you might choose and how they work.
Home Equity Loan
The home equity loan is a loan against the equity on your home, usually offered as a percentage (often 75%) of the value of the total equity in your home. This loan acts as a second mortgage on your home with all of the same power and authority as your first mortgage (i.e. if you default on paying the loan, the bank can foreclose on your home in order to recover costs). A home equity loan is a one-time payout loan of an amount of your choosing, up to the total offer made by the bank or lending institution. You can then use this money to finance your debt or anything else you want.
Home Equity Line of Credit
The Home Equity Line of Credit, otherwise known as HELOC 'he-lok', is a loan taken out on the equity you have available in your home or property. Unlike a conventional home equity loan, a HELOC acts as a revolving credit account, which means that once you have paid off what you have borrowed against the equity, you can use it again and again for as often as you need. This type of loan is great not only for financing debt but also for paying for irregular expenses that you may have in the future or unexpected surprises. The interest rate for a HELOC is set much like a credit card and usually does not change as long as you keep the payments consistent and on time. If you are thinking about any financing, make sure you go over the debt management techniques to help you through the processes.