Like Finding Money: Let a Home Equity Loan Work for Youby Emily Kerr
Loan Page Columnist
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Once you've been in the home for a while, it might be time to consider a home equity loan and let your home take care of you.
What is a Home Equity Loan?A home equity loan is a line of credit that uses your home's equity as collateral. Equity is the amount of the home that you own, either because you have paid that much of the mortgage or because the house has increased in value while you've owned it. In determining the amount you can borrow against your home, lenders determine the amount of equity you have and set a credit limit. This limit is based on a percentage of the value of the home minus the balance owed on your mortgage.
Calculating a LoanTo figure out the amount you can borrow through a home equity loan, you can apply a formula. Lets say a lender is willing to give you 75 percent of the appraised value on your home. If the home is appraised at $300,000, 75 percent is $225,000. If you still owe $120,000 on your mortgage, that leaves $105,000 as your credit limit for a home equity loan. Just remember you're putting your house on the line, so never borrow more than you can repay.
The lender is also going to take into account your ability to repay the home equity loan, since it is basically a loan from your mortgage. A home equity loan is a good way to make your house work for you and find cash for the big things in life, from the new car to an education.
Home Equity Loan
About the AuthorEmily Kerr is a freelance writer with over 425 articles published. She writes about everything from new home construction to new home loans and beyond.
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