If you’re a homeowner, chances are that you’ve been deluged with offers from finance companies to lend you money based on the equity you have invested in your home. A home equity loan is a loan extended to you that is secured by your home. The amount of the loan is based on how much ‘equity’ you have invested in your home. The basic explanation of ‘equity’ is ‘the difference between your home’s value and how much you still owe on the mortgage’.
In other words, if you bought your home for $125,000 and put $20,000 down on it, financing $105,000, then your equity in your home on the day that you close the deal is $20,000. Now imagine several years pass. You’ve paid off $15,000 toward your mortgage – but at the same time, the value of your house has increased to $175,000. Your equity in your home is now $85,000: $175,000 (your home’s current value) – $90,000 (the amount you still owe on your home) = $85,000.
A home equity loan allows you to turn the equity you have in your home into cash by borrowing money and using your home as collateral to insure that you’ll repay it. If you...
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