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3 Things You Need to Know About Home Equity

What is home equity?

If you are a homeowner, chances are you’ve heard the term “home equity” before. You may be surprised to know that you can use your home equity to benefit your family’s finances.

Basically, home equity is the amount of your home that you own. Since you pay off your mortgage gradually over time, the amount of your home equity may increase as well. Your home equity may also rise if the market values increase. Below we’ve listed three important things to know about home equity and home equity loans.

1. How do I determine the equity I have in my home?

You will need to speak with a loan officer or other loan professional to be 100% sure of your current home equity, but you can calculate a fairly accurate estimate on your own. We recommend doing so before attempting to refinance your home or opening a home equity line of credit. To determine your estimated home equity, subtract the amount you still owe on your mortgage(s) from the current market value of your home. The sales amount when you purchased your home may differ from the current market value. The opportunity for market fluctuation is greater the longer you have owned your home. Your current value may be more than when you bought it, or it may be less. In either scenario, it will impact the amount of equity you currently have in your home. You can usually find an estimate for your current market value online, but be sure to take online estimates with a grain of salt. Once you have an estimate, subtract the balance of your mortgage(s) (what you still owe) from the estimated value. For example, if your market value is $250,000 and the amount you owe is $175,000, then you have $75,000 in home equity.

2. How can I use my home’s equity?

Once you have spoken with a professional and have a better idea of your home’s equity, you can look more closely at options that allow you to use the equity how you please. Many people use their home equity to finance repairs, pay off debt, or other financial uses. After learning your home equity amount you may choose to accrue more before pursuing any of those routes. Be warned, however, that if the market fluctuates and values drop, it may negatively impact your equity.

3. What are the best home equity loan options for me?

Should you decide to pursue a home equity product for yourself, you have several options. Among your choices is something called a Home Equity Loan. Home equity loans allow you to borrow a pre-determined amount of money, with the potential to receive the payout all at once. Also popular is something called a Home Equity Line Of Credit, or HELOC loan. HELOCs act similarly to a credit card, allowing you to borrow money over a period of time at your discretion, up to your credit limit. HELOCs are also revolving debt, once again like credit cards, meaning that for a HELOC with a $10,000 limit, you could spend $5,000 and pay down $3,000, leaving you with a balance of $8,000 to spend. Should you choose to pursue a Home Equity Loan, HELOC, or another type of loan that uses your home equity, credit standards and limitations will apply.


To learn more about home equity and how to use yours wisely, contact Southern Trust Mortgage today. Our loan experts are available to help you make an informed choice.

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