Home Equity

What does nearly everyone want to have in their lives? If you were to ask me, the most important (material) thing that a person must posses is a house. I believe that everybody, even the single people, want to possess a house of their own someday and call it a home. If you are a single man and you own a house, it is likely that you just want a place to call your own, or because the idea of getting married some day and raising a family is on your mind. Whatever your reasons might be, owning a home is a noble endeavour and is much more important than many other things.

Since the market value of a home is continuously increasing, your home could probably be your best asset. In fact, more and more lenders are offering home equity plans for homeowners. The home equity loans and home equity line of credit are very interesting and tempting ways to borrow a very large amount of money in exchange for the equity that you own in your house. Lenders will allow you to borrow a certain amount of money, which is relatively high, and your home will serve as collateral.

Lenders are very confident when letting you borrow the amount of money you qualify for because you can’t just carry your home and run away or hide it if you are not able to make the scheduled payment on your loan. Yes, home equity loans and home equity lines of credit may be the best option if you need a very big amount of money, but think it over very carefully. You must always remember that if you can’t make the payment as scheduled, it could mean the loss of your house.

Just to give you an idea as to how a home equity loan is calculated and how much you could possibly borrow if you use your home as collateral let me give you an example. Let’s say, the current value of your home is $ 200,000, and you still owe $ 100, 000 on mortgage, the difference between the value of your home and the amount you still owe on mortgage is called your home equity. Given that:

Your home’s current value    $ 200, 000
The amount owed on mortgage  $ 100, 000
————————————————————
The home equity is    $ 100, 000
And to calculate the potential amount that you can borrow whether for a home equity loan or a home equity line of credit, the lenders usually set a percentage of your home’s appraised value, let’s say 80 %.

Your home’s current value      $ 200, 000
Percentage sty by lenders          x 80 %
Percentage appraised value                  = $ 160, 000
Minus the amount owed on mortgage            - $ 100, 000
——————————————————————————  
Your potential credit      $ 60, 000

The actual amount of money that you may borrow will also depend on your ability to repay, debts, and other financial obligations. No matter how tempting the potential credit of your home equity can be, you should have a valid reason before you consider using your home’s equity. Most people want to use their home’s equity for reasons like payment for college education, house renovation, or hospital bills.

Before you even think of using your home’s equity, you should weigh things over. How big is your need for money? Is it worth putting your house on the line? These are the things you should think over a million times before you put your home at risk.