When you are a homeowner, there area always unexpected expenses that come up. But many times, we don’t have the spare cash to make repairs and upgrades. This is where a Home Equity Loan (HEL) or a Home Equity Line Of Credit (HELOC) can be helpful.
Home Equity is the difference between what you owe on your mortgage and what the current market value of the home is. For example, you purchased your home 10 years ago for $200,000 with 20% down making your mortgage balance $160,000. Your home is now worth $400,000 in the current market. You now have approximately $240,000 in home equity.
Let’s say your furnace and air conditioner are 25 years old. It hasn’t completely died yet, but you know it’s coming. Over the summer, you had to reset the breaker at least 5 times. But who has $8000-$15,000 laying around to replace it? If you have lived in your home for a while, you may have enough home equity to cover the cost.
A HEL or HELOC can also come in handy if you are planning to sell your house. Let’s say your house interior is in pretty good condition, but your roof is toward the end of it’s life. You can borrow against your equity, have the roof replaced, and then when you list the home for sale, you will be able to provide the buyer with a new roof that has a warranty. It will help your home sell faster than one down the street with a 30 year old roof. That is a BIG selling point, especially if the buyers are first timers. Owning a new home is a huge stressor, and taking that off their plate is a definite relief.
Now, a home equity loan SHOULD NOT be considered a piggy bank. You WILL have to pay it back. Depending on what you decide, you can get a Home Equity loan for the full amount of the equity in your home, or you can get a HELOC, which is a line of credit you can use, but you only pay interest on what you withdraw. On a HELOC, the interest rates will vary, but on a HEL, you will have a fixed rate. Depending on your needs, either option could work. Talk to your accountant about what option would be best for you. If you want to get an idea of how much equity you have in your home, give me a call and I can show you the most recent sales in your neighborhood. This might be the right option for you!