Making the Most of the Equity in Your Home
- Better Borrowing
- Frontwave Credit Union
Home values across San Diego, Riverside and San Bernardino Counties have been on the rise over the past several years, and according to Realtor.com, have continued to grow month over month even in the midst of the coronavirus pandemic. That’s not just good news for folks looking to sell their home. It’s also good news if you’re happy where you are, because it means you’ve now got more equity in your home.
What is equity?
Simply put, equity is the difference between how much you owe on your mortgage and the current value of your home. So if your home is worth $500,000 and you owe $300,000 on your mortgage, your equity is $200,000. Your equity goes up over time as you make regular mortgage payments. It can also go up when home values rise — or go down if home values fall.
What are the benefits of having equity in my home?
Home equity is a powerful financial tool. That’s because you can borrow against it, just like you borrowed to get your first mortgage. And because you the money you borrow is secured by collateral (your home), the interest rates and terms are generally much better than what you’d get with unsecured loan like a credit card.
What can I do with my home’s equity?
The sky is practically the limit! Many homeowner use home equity loans to:
- Finance home renovations or repairs, such as upgrading the kitchen, adding a pool, converting to solar or replacing the roof
- Consolidate and refinance higher interest debt — with a lower interest rate, more of your payment will go toward paying off principal, so you can pay off debt faster
- Finance an education — for a loved one or yourself
How much of my home’s equity can I tap into?
This can vary from lender to lender and loan type to loan type. Here at Frontwave, our home equity loan allows you to borrow up to 90% of your primary home’s value or 80% for a second home. That percentage is for your first mortgage and home equity loan (sometimes called a second mortgage) combined. So if you have 40% equity in your home, you can borrow up to 30% with a home equity loan (60% first mortgage + 30% home equity loan = 90% home loan value).
Our Frontwave home equity line of credit allows you to borrow up to 90% of your primary home’s value. Again, that’s your first mortgage and remaining equity combined.
What’s the difference between a home equity loan and a home equity line of credit?
With a home equity loan, you get all the money you want to borrow all in one lump sum. You also choose the term you want to borrow it for. At Frontwave, we offer fixed-rate 10, 15 and 20-year home equity loans. This can be a good choice if you have one big project to pay for all at once and want a fixed monthly payment to pay it off.
With a home equity line of credit, you can choose when and how much money to borrow over time. Think of it like a credit card. You get a limit (your equity) that you can borrow against and you only pay interest on the amount you actually withdraw. This can be a good option if you want to pay for various expenses over an extended period of time, such as ongoing home repairs or college tuition. Just keep in mind your interest rate and payments can vary over time.
What else do I need to know?
A home equity loan or line of credit can be a great way to finance big expenses. But you should always keep in mind that what you borrow is secured by your home. If you’re unable to make your payments, your home could be foreclosed on. Also, while home prices are on the rise today, they could fall in the future. If you use up all of your home’s equity now, you could end up owing more than your home is worth. For these reasons, you should always take a careful look at how much you can truly afford to borrow and how you plan to pay it back.
Ready to make the most of your home’s equity?
Click here to check rates or apply for a home equity loan or line of credit today!