Equity is
the difference between your home's current
appraisal value and how much you owe on it.
For
example, let's say you bought your home for
$100,000, and at the time of purchase, you
put 20 percent
down payment ($20,000), and
have managed to pay $10,000 towards the
principle of your property. If your home's
current
appraisal value is $200,000, then
you have $130,000 of home equity.
In order
to tap into that stored money, you can
either sell your home to get the entire
equity, or you can
refinance your mortgage
if you don't need all that money at once.
The second option also has the added
advantage of low interest rates and tax
deductibility.
Home
equity loans allow you to borrow against the
value of your home. They generally have a
higher interest rate than first mortgages,
but they are a bargain compared to the
interest rates on some credit cards.
However, if you default on repaying your
home equity loan, you can lose your home.
That is why the majority of borrowers who
obtain home equity loans are often
middle-aged with secure jobs, with an
average household income of $63,000,
according to the Consumer Bankers
Association.
