Financing Equity



The world of home financing is an interesting place. The longer you are involved in it, typically the more options become available to you. This process is started by simply paying off your mortgage. As you make payments on the principle of the mortgage, your equity grows. Equity is a fairly easy thing to figure out. Simply take the value of your home, subtract from that the amount that is still outstanding on your mortgage and you have your equity. Think of it as the fluid cash you have invested in the home. Once your mortgage is paid in full then your equity is the home's worth.

As your equity grows, so does your ability to borrow against that equity. Typically there are two different loans that come available as your equity increases, the equity loan and the home owners line of credit. Both loans are secured by the existing equity in your home and as such come at fairly low interest rates and flexible terms. These loans are ideal for home renovations and any emergencies that occur. The equity loan is also known as a second mortgage. This loan is a definite amount that you have available for whatever project or need you have. Usually there is a monthly minimum that needs to be paid back on a loan of this type.

The home owner's line of credit functions differently. Think of it as a credit card without the plastic. This loan is also ideal for home renovations because of its flexible nature. It is able to compensate for any unforeseen expenses that crop up during the process of renovating. This loan has a much lower interest rate than credit cards however, usually as low as 5-10%. This is not a definite number just an approximation. This interest rate is available as the amount of the loan is secured by the equity.

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