Home Equity Line of
Credit
What is a Home Equity
Loan - A home equity loan also known as a line of
credit is a second mortgage that lets you turn your equity
into cash, allowing you to spend it on home improvements,
debt consolidation, college education or other expenses. A
home equity loan or line of credit allows you to borrow
money, using your home's equity as collateral.
Home equity loans are a
great way to take advantage of all of the equity that has
built up in your home. Equity is the money that exists on
paper because the value of the home is greater than the
principal owned on the initial mortgage.
Equity is gained in a
several different ways. Initially, equity is gained
because the down payment on a home creates a difference
between what the house is worth and what is paid for it.
If a home originally cost $450,000.00, and the buyer puts
down a twenty percent down payment, it creates the first
equity. In this case, the difference between the worth of
the house and the money owed would be $90,000.00.
If the home buyer was able to get an exceptional deal,
then the initial equity could be higher. If the home was
worth $500,000.00 but the seller really needed to sell and
was willing to sell if for a small profit, the equity
changes. In this case, the home buyer would have
$140,000.00 in equity.
