What is home equity? – CBS News

In an economic climate plagued by Decade-high inflation and uneven stock market performance, millions of Americans are looking for new and innovative ways to make ends meet. Everything can take form from it Passive income stream per Refinancing Such as relying on traditional forms of credit Credit card or personal loan.

Homeowners have a unique option to pursue: their own home. or, specifically, The equity they have built up Their time at home. In this article, we’ll break down what home equity is, how it’s calculated, and how you can use these funds in a medium. Home equity loan or a Home Equity Line of Credit (HELOC).

Explore your home equity loan options online now to see if a home equity loan or HELOC is right for you.

What is home equity?

Simply put, home equity is the amount of money you currently have invested in your home. It’s a combination of the amount you paid toward your mortgage principal and the current market value of your home.

Let’s say you initially bought your home for $500,000 but made enough payments that you now owe $400,000. By the time you’re paying off your mortgage, your home’s value has gone from $500,000 to $600,000. In this case, you have $200,000 worth of home equity ($100,000 you paid off the mortgage and the value of your home increased by $100,000).

That said, home equity does not always add up favorably. In some cases, you may have paid off your mortgage, but the value of the home has decreased over the same period. In this case, you can only use the equity from the payment you made (since there is no new value).

A real estate professional or lending institution can set up a formal appraisal of your home so you can accurately determine how much equity you currently have.

How can you use your home equity?

If you are one of the millions of homeowners who have viewed their property Price increase In recent months or years, chances are high that you’ve been sitting on a significant amount of home equity. You can use it in multiple ways to pay for expenses. There are two primary things to know:

Home equity loan

Home equity loans act as second mortgages. Homeowners put aside a portion of the equity in their home to do whatever they see fit. Home equity loans have several advantages, namely their low interest rate And Tax deductibility of interest If used for IRS-approved home repairs and improvements.

Explore your home equity loan options here now.

HELOCs

HELOCs work Similar to a home equity loan, but instead of getting a large sum of money at one time, a HELOC works more like a credit card. This is a revolving line of credit that the homeowner can use as they see fit. HELOCs also have less interest rate Than credit cards or personal loans, and they also duty free If used correctly.

These are usually divided into two periods: a draw period when you borrow as much as you want or need (usually limited to 85% of your home equity) and a repayment period when you can’t borrow any more money and pay back what you borrowed. have to pay

Explore your HELOC options here now

Bottom line

Homeowners looking for ways to pay for rising expenses should strongly consider investing in their home — and the equity they’ve built up — as a low-interest credit option. Home equity can be used in a number of ways, including a home equity loan or HELOC. And if used for a qualifying reason, the interest the homeowner pays on these forms of credit may be tax deductible for the year for which it was used.