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Benefits of Home Equity Financing

Home equity mortgages represent the available cash you can can borrow from your home. Home equity can provide immediate cash for large one time expenses such as home improvements or for smaller re-occurring expenses like a car payment.

Home equity can be very affordable since the loan amounts are usually much smaller than on first mortgages (even though the rate may be higher, the monthly payment will be much less) and closing costs are also much lower.

A major advantage of a home equity financing is that it is one of the only means of tax deductible borrowing available while credit cards, auto and personal loans are not. Home equity can help you manage your finances through debt consolidation by paying off high interest rate credit cards or by converting several credit balances into single lower interest loan. Another advantage is that this type of financing carries lower interest rates since the loan is secured by the mortgage, translating into huge interest savings over time. (Please consult your tax advisor about the interest deductibility on both first and second mortgages).

Home Equity Financing

Home equity financing provides a convenient and flexible way to access cash from your home. There are two ways to finance your home's equity. First, home equity loans (HEL) and second, home equity lines of credit (HELOC). Home equity programs include stand-alone or piggyback mortgages.

What is Home Equity?

Home equity is simply the difference between the value of your home and the amount you owe on your mortgage. Your equity builds over time from three specific sources. First, the down payment made on your home when it was purchased. Second, paying down your loan through your scheduled monthly payments and any principal prepayments. Thirdly, home improvements and local property appreciation.

HELs and HELOCs are also known as second mortgages. Second mortgages represent a 2^nd lien on your property that stands behind your first mortgage (1^st lien). In case of default and foreclosure, the 1^st lien holder gets paid off before the 2^nd lien holder. Due to this risk position, interest rates are usually higher for second mortgages.

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