What Is Home Equity? The difference between what your house is worth and the amount you owe on it.
Using Home Equity • Cash-out refinance • Home-equity loan • Home-equity line of credit • Reverse mortgage
Common Reasons for Using Home Equity • Making home improvements • Paying for education for your children • Paying for education for yourself
Common Reasons for Using Home Equity • Consolidating debt • Making investments
Determining How Much Home Equity You Have • Outstanding loan balance • Contact loan servicer • Home’s market value • Contact local tax assessor • Contact local real estate professional • Hire an appraiser
Calculating Home Equity $150,000 home value
Which Product Is Right for You? • Cash-out refinance or long-term home-equity loan for a lot of money to repay over a long time period (e.g., home improvement project) • Home-equity loan for a large amount of money for immediate use and no additional borrowing (e.g., pay a large medical bill) • Home-equity line of credit for things that will take time and require multiple payments (e.g., college tuition over four years)
Important Considerations • How much equity do you have in your home? • How will borrowing more money affect your home equity? • What LTV ratios do local lenders use for different loan products?
Important Considerations • How will borrowing against your home equity affect your payments? • What interest rates do lenders charge for different loan products? • Do any of the loan products require a lump-sum payment in the future?
Important Considerations • What are the up-front costs associated with different loan products? • What are the loan terms for different loan products? • How will borrowing against your home equity affect your tax deductions?