Understanding Home Equity and How to Use It

Buying a home is an investment that offers a multitude of benefits, including home equity. Home equity refers to the difference between the market value of a property and the outstanding balance of any mortgage or loans you have against it. It’s the portion of the property that you have paid off. This value accumulates over time and can be tapped into and used in various ways.

As the market value of the property increases or the mortgage balance decreases, the equity grows. Equity can be built in several ways, such as by making on-time mortgage payments, your property’s value increasing, or making home improvements that increase its worth. Before using your home equity, you’ll need to figure out just how much it is. You’ll usually need to do that by getting a professional property appraisal. Once you’ve got your calculation determined, you’re ready to use your home equity to your advantage. 

Home Equity Loans

With a home equity loan, homeowners can borrow against the equity in their property. The loan amount is usually based on a percentage of the home’s appraised value minus the outstanding mortgage balance. These loans often have fixed interest rates and can be used for various purposes such as home renovations, debt consolidation, or educational expenses. However, it’s crucial to carefully evaluate the terms, interest rates, and repayment terms before committing to a home equity loan so you don’t get into debt you can’t repay.

Home Equity Lines of Credit (HELOC)

HELOCs work similarly to credit cards, providing homeowners with a revolving line of credit based on their home equity. This allows them to borrow as needed, up to a predetermined limit, and pay back the amount borrowed with interest. HELOCs offer flexibility but are often higher interest than home equity loans, meaning you’ll need to responsibly manage your money to repay it. These are commonly used for home improvements or emergency funds.

Home Equity for Retirement

Homeowners nearing retirement can utilize their home equity to secure finances for the future. If you’re downsizing to a smaller property you can use your surplus equity as retirement savings, or you can look into a reverse mortgage where the homeowner receives regular payments or a lump sum while still living in the home.

Home equity serves as a valuable asset for homeowners that can be harnessed to improve your home, your life, and your family’s needs such as paying for college or paying off high-interest loans. It is crucial to do diligent research on your home equity options, considering factors such as interest rates, repayment terms, and future financial implications. With professional advice and a well-laid plan, home equity can be a huge benefit to you and your family.

VA Loans: Rates, Benefits, & Qualification Requirements

If you are a current service member or veteran, there are mortgages specifically designed to help you buy a home, known as VA loans. With a VA home loan, you can purchase or refinance a home with no down payment.

If you qualify for a VA home loan, you can enjoy many benefits, like no longer having to wait to purchase your dream home while you save up for a down payment and having access to lower interest rates. Griffin Funding is proud to help service members and veterans find the right mortgage solution for their needs.