Wednesday, November 20, 2019 / by Shannon Eagan
Simply put, your home equity is the market value of your home relative to any loan balances remaining. There are two main ways to utilize this value. Getting a home equity loan provides you with a lump sum of money that you pay off in monthly installments, generally over five to 15 years. As with any loan, you will be required to pay interest on the amount, but it is usually a fixed rate. Choosing to use a line of credit instead offers similar benefits, but instead of receiving the money up front, you are given a pool you can draw from as needed. With this option, the lender provides a maximum borrowing limit and you can choose to use it or not until it is reached.
Before dipping into your home equity in, either way, it is important to understand the possible consequences. In both instances, your home is used as loan collateral. This means if you are unable to make payments on the loan for any reason, the lender can sell your property or take your home in foreclosure. Additionally, there will likely be closing costs and fees you have to pay in association with the loan.