07 Sep Equity and equity loan
Chances are you have heard these two terms time and again, especially if you are planning to invest in a property. Before we analyze each one of them, it is important to understand what they mean in the world of mortgages.
Basically, equity refers to the value of the property beyond any amounts being owed, therefore the difference between the price that a home could be sold for and the amount still owing on any mortgages, whereas an equity loan is a loan secured by real estate. In case of equity, it really is the money a home owner could get after selling the property for fair market value and after having deducted mortgages and other expenses from the fair market value. However, mortgages and home equity loans are two different types of loans you can take out of your home. A first mortgage is the original loan that you get to purchase a home.
Home equity loans allow you to borrow against your home’s value. They provide access to large amounts of money, and they can be easier to qualify for than other types of loans because they are secured by your house. However, similar to other aspects of the mortgage process, using your home to guarantee a loan comes with certain risks because a home equity loan is a type of second mortgage.
One benefit this type of loan offers is usually interest rates lower than most credit cards, and are usually paid over a longer period of time than credit cards, which will contribute for a reduction in monthly payments. As well, there is usually a higher borrowing limit than most credit cards. One of the many disadvantages is related to the fact that with an equity loan you will have an additional monthly payment. Depending on how much you borrow on this loan, the equity in your home will be used until the loan is paid.
At The Costa Group, we can assist you in assessing the equity in your property and help you determine whether a home equity loan or refinance is right for you.