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Home Equity Loans: Making Your Plans Come to Life the Easy Way

Home equity loans may be one of the best-kept secrets in the financial world. Credit cards, mortgage loans, and personal loans get all the attention, but home equity loans can be just as effective and beneficial.

Are you hoping to renovate your home, for instance, or do you have holiday expenses coming up that you need to pay for? Home equity loans are ideal solutions for both, but that’s just the beginning.

What is Equity?

New homeowners frequently ask us, “What does home equity mean?” or, more specifically, “What is a home equity loan?”

Home equity is the difference between what you owe on the home and what it’s currently worth. Equity fluctuates with the current state of the economy and home values. If you owe $300,000 on your home but its value rose to $400,000, you would have $100,000 of equity in the home. On the other hand, if its value dropped to $200,000, the equity in your home would fall.

One aspect of home equity that is in your hands is how much you have paid for your mortgage loan. As you pay down your loan, the equity in your home will rise, although other factors may be in play at the same time. That’s one reason why it may be wise to pay toward the principal of the home rather than only the interest month-to-month; the more you pay down the principal, the greater the possibility for home equity. That’s true unless the value of the home falls faster than you can invest into paying down the principal.

A home equity loan is secured by the home itself.

How Do Home Equity Loans Work?

Now that all the technical details are out of the way, the long and short of the story is that you have a resource for loans that you might not have considered in the past.

If you choose this option, you can set it up as a home equity loan or a home equity line of credit (HELOC). They work just like other loans or lines of credit. With a loan, you get the lump sum upfront and have to pay it back. With a line of credit, you can use it as needed, like you would a credit card.

There are not many limitations regarding how you can use a home equity loan, but most homeowners lean toward using them for large-scale investments. Smart ways to use a home equity loan include:

  • Making home improvements, which may actually increase the value of your home and likewise the equity in the home
  • Paying for college tuition
  • Consolidating debt
  • Addressing unexpected expenses such as for funerals or medical treatment

Members of Georgia Heritage Federal Credit Union can benefit from home equity loans featuring competitive interest rates, affordable payment plans, and a simple application process. To see if a home equity loan is right for you, contact GHFCU by sending us a message online, calling us at (912) 236-4400, or visiting www.gaheritagefcu.org.

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