If you’re thinking about making home improvements or buying a new vehicle, you may want to consider tapping into your home’s equity.
Your home equity – the difference between your home value and what you owe on the mortgage – can help you cover these and other expenses:
- Remodeling and home improvements
- Car, truck, SUV or boat
- Vacation expenses
Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the lender advances you the total loan amount upfront, while a home equity credit line provides a source of funds that you can draw on as needed, much like a credit card. Here are a couple quick facts about each to help you decide which may be right for you:
Home equity loan
- Repay the loan with equal monthly payments over a fixed term (just like your original mortgage).
- The amount you can borrow is usually limited to 85% of the equity in your home. The actual amount depends on your income, credit history and the market value of your home.
Home equity line of credit
- This is a revolving line of credit, much like a credit card. You can borrow as much as you need, any time you need it, by writing a check or using a credit card connected to the account.
- You make payments only on the amount you actually borrow, not the full amount available.
- HELOCs may give you certain tax advantages unavailable with some kinds of loans. Talk to an accountant or tax advisor for details.