Making The Most Of Your Equity

Your house is your home; it provides you with shelter as well as a place for your family. But did you know your house can do even more for you? You home can help you consolidate your debt; pay for a college education, or any other expense that you couldn't pay for with your own income. You can turn your house into a line of credit.

When you decide you need extra cash you can take out a home equity loan. A home equity loan is a loan with a solid interest rate that is backed by your house. It is commonly referred to as a second mortgage since you are basically taking out another mortgage, except instead of using it to pay for your current house you are using it to pay for another expense. There are two main types of home equity loans you can apply for:

Closed End Home Equity Loan

A closed end home equity loan is when the borrower receives the entire value of their loan in a lump sum and can not borrow any more. Your house will be appraised and based on that appraisal you can borrow up to 100% of the value of the house. These loans are usually amortized for up to 15 years and come with fixed interest rates. Some lenders will allow you to do an over-equity loan, in which you borrow more then the house is worth.

Home Equity Line of Credit

A home equity line of credit (HELOC), or open end home equity loan, turns the appraised value of your home into a line of credit. When first applying you will set the limit based on the appraised value of your house, it is possible to go up to 100%. You can borrow as often as you want totaling up to the amount of your credit limit. Home equity lines of credit usually last up to 30 years and have a variable interest rate.

If you are in need of money your house can actually help you pay your bills! What will it do next?