Equity: Understanding the E-Word

Did you know you can use your home equity to help advance your financial goals? You can borrow against the money you’ve invested in your property, which is known as equity. Here’s a guide to equity and how it can position you for success in both the short and long term.

You might have seen this word but didn’t have a clear understanding of what it means. In simple terms, it’s the difference between your home’s market value and your loan balance. it. For example, a home that’s worth $250,000 and has a $200,000 mortgage balance has $50,000 in equity. That means unlike renting an apartment, you’re actually making an investment with every mortgage payment instead of your landlord benefitting from your monthly contributions. That’s also why home ownership is such an attractive option for people who want to build wealth and work toward the American Dream.

There’s also the practical aspect. Consider the fact that the more equity you have, the more financing options may be available to you. Your equity helps your lender determine your loan-to-value ratio (or LTV). This is one of the key factors decision makers take into consideration when evaluating your application. A professional appraisal determines this.

There are several ways to benefit from your home equity. Feeling bogged down by a high-interest credit card, for example? Perhaps you have some mounting educational or medical expenses you need to tackle. Dreaming of a bathroom remodel? These are all typical scenarios in which you can borrow against your equity.

The details will vary according to the loan type. An option like a cash-out refinance might make sense for homeowners looking to cover expenses like those mentioned above. A home equity loan is a separate loan on top of your first mortgage. You’ll receive a check at closing and are free to use the funds as you determine. And unlike a personal loan or other products, you’ll benefit from the safety and security of a fixed-rate mortgage.

Speaking of interest, a cash-out refinance can be a means to be proactive about your financial obligations. For example, you can consolidate high-interest debt obligations like credit cards into a fixed mortgage payment. You may also get the benefit of deducting these interest payments from your taxes, while credit card debt is not eligible.

Qualifying borrowers can finance up to 80% of their home’s appraised value. The difference between the new loan amount and the borrower’s existing mortgage is paid to the borrower at closing. Cash-out refinances are available in different terms. It’s important that you read up on the specifics and what they mean for you and your financial future.

There’s no need to feel left in the dark about your options. For added peace of mind, talk to a real estate professional about what’s going on in your area. Is it a buyer’s or seller’s market? Are prices rising or falling? He or she can advise you about the conditions and whether they work to your advantage and even refer you to a mortgage lender in St. George, Utah, like 1st Rate Mortgage.

You can also find a subject-matter expert in our team. We’re more than happy to guide you through the process. We can help determine which interest rates you might qualify for if you choose to finance another purchase. If you’re considering a refinance, ask about your options with those products, too.

In other words, home equity can open doors you might not have considered and help you achieve your financial goals on a faster timeline. Give us a call today.