Home equity questions answered

yours Home is equal Can be a great source of financing for a variety of expenses. One taps into this equity Home equity loan or Home Equity Line of Credit (HELOC)You can finance everything from emergencies to retirement expenses — often at much lower rates than other products.

But, as with any financial product, it’s important to know what to look for. That’s why we’ve outlined some important questions to ask yourself when evaluating your home equity options.

Check today’s home equity rates to see how much you can borrow.

Home equity questions answered

per Get the most out of your home equityBe sure to ask yourself this question.

How much equity do you have?

How much equity you can borrow depends on how much you currently have. you can Calculate your home equity Subtract your outstanding mortgage balance from the current value of your home.

Let’s say, for example, that your original mortgage balance was $250,000. You paid $100,000, so the balance is now $150,000. Meanwhile, the value of your home has gone up to $300,000. That means your home equity is $150,000 (or $300,000 minus $150,000).

You can typically borrow up to 85% of your home equity. So, in this case, you may be able to borrow up to $127,500.

If you don’t need the funds immediately, you may be better served by waiting until you’ve paid off more of your mortgage. Home prices are high Or both. This will increase your home equity and therefore, how much you can borrow.

Compare home equity options online now to find the best one for you

Why do you need funding?

When you can use a home equity loan or HELOC for any purposeIf you use it for IRS-approved purposes, you may be eligible for a tax deduction Home repairs and improvements.

“Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Says “the loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”

So, if you’re using a home equity loan or HELOC for home repairs or improvements, be sure to save not only your loan paperwork, but also any documentation that proves how you used the funds. And consult a tax professional if you’re unsure whether your planned improvements will qualify for a deduction.

When do you need funds?

Considering when to access your funds can help you decide if you should get one Home equity loan or HELOC.

A home equity loan is good when you need a lot of money right now, such as to pay medical expenses or Debt Consolidation. You will begin repaying the loan immediately, incurring interest on the full amount of the loan. However, you’ll enjoy fixed payments, which can simplify budgeting and protect you if interest rates rise.

A HELOC is good when you want ongoing access to money as needed, such as paying for a child’s college education. You’ll have a variable interest rate, but you’ll pay interest on the amount you borrow, not the total line of credit. Also, you will start repaying only after the draw period ends (draw period usually lasts five to 10 years).

Check out current home equity rates here!

Bottom line

Both home equity lines and HELOCs can be smart ways to pay for expenses by using the value already built up in your home. By asking yourself the questions above, you can determine which is best for you and make the most of your funds Once you know the answers, check out our picks for Best Home Equity Loans And HELOCs.