Home Equity

Home equity is the balance of the appraisal amount of home minus the amount owed to the lender. Home equity is the part of the home the consumer owns outright. Most homes appreciate or increase in value over time. Your home is most likely worth more when you sell it then when you purchased it. This is known as building home equity.

You may take a loan out using the home equity as collateral. This is termed a “home equity loan”. In most instances, the interest paid on the home equity loan is tax deductible, which makes these types of loans more attractive. The interest rates on these loans are also much lower than conventional loans, so it can make a lot of financial sense to use this money instead of borrowing at prime rates.

More and more people nowadays understand this concept. It is becoming much more common for people to use home equity loans to make major house repairs, pay college fees for kids and pay off high interest revolving around credit card debt.

Refinance to Consolidate Debt

Most of us can and do run up credit card debt without knowing exactly what we have spent on. Credit card companies make their money off the interest you pay on the money you owe to the credit card. Unlike our parents, this interest is not tax deductible and the rates can and usually are very high. A lot of people find themselves with far more credit card debt than they can handle. If you are in this situation, start arranging to refinance the debt into a home equity loan.

Remember that by refinancing you are not adding or subtracting money from what you owe, but you are simply moving the debt to a lower interest rate loan. You may have several debts and can consolidate them into a one-home equity loan and thus one monthly payment. Note that a home equity loan is a fixed amount borrowed over a fixed term usually no more than five years.