Home Equity Essentials
Home Equity Essentials
One of the biggest benefits of owning a home is something called equity. Let’s take a look at what equity is, why you want it, and how to access it for home remodel projects, college educations, and a lot more.
Home Equity Is a Good Thing
The difference between what you owe on your mortgage and how much your home is worth is your equity. That number can fluctuate as the housing market fluctuates. As long as your home doesn’t lose value over time, you’ll build equity with every payment.
Here’s an example: If your home is worth $450,000 and you owe $300,000, your total estimated equity would be $150,000. While it’s nice to have equity in your home, there are only a few ways to access it.
Home Equity Loan or Home Equity Line of Credit (HELOC)?
Both a home equity loan and HELOC allow you to access the equity in your home, but they’re very different in how much you could potentially pay in interest.
A home equity loan is a lump sum of money that comes with a fixed-rate and term and ongoing monthly payments. They’re great if you simply want a large amount of cash to remodel, make a large purchase, pay for college, or consolidate debt.
A HELOC is a line of credit that you can draw cash from as needed. As you draw from the available balance, you only pay interest on outstanding balances. HELOCs are great for those who want to be able to tap into their home’s equity as needed for remodels, repairs, upgrades, and more.
In both cases, the interest you pay on a home equity loan or line of credit may be tax deductible. Please consult with a licensed tax professional about your options.
Cash-Out Refinance
If you refinance your home loan, you can choose to take the equity as cash. This is called a cash-out refinance, and it replaces your old mortgage with a new, higher balance based on the amount your home is worth. The difference between what you owe and the new loan can be taken out in cash.
Please note that there are costs associated with refinancing a home and this method might not always work in your favor. Check out our Home Refinance Calculator to estimate your payment or talk to our Mortgage Servicing team.
How Much Equity Can You Access?
The short answer is that it varies. Generally speaking, Clearwater allows you to access up to 80% of your home’s equity for primary residences and up to 70% for secondary or non-owner-occupied residences. However, several factors come into play, such as how much you owe, your overall credit score, and your household income. It’s best to reach out to our Mortgage Loan team for specifics.
Get More from Your Equity
There are ways to get even more equity from your equity. When you use that money for a home remodel, such as repainting, updating the windows, or adding a new roof, you’re making your home more valuable, creating more equity.
Get Equity Answers for Your Home
Our Home Loan Team can help you calculate your available equity and show you all of your options. Just email or give us a call at 406-523-3312. today to get started.