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Here's a closer look at what a home equity loan is and when you may want to consider this financing option.
Simply put, home equity is the difference between what you owe on your mortgage and what your home is worth. For example, suppose your home is worth $500,000 in today's market and you owe $200,000 on your mortgage. That means you have approximately $300,000 in home equity against which you can borrow.
A home equity loan is the general term for any type of loan that allows you to borrow against the equity in your property. This may include line of credit loans, 100% offset home loans, and variable rate mortgages with a redraw facility.
You may also have the option of refinancing your existing home loan to access funds.
One of the main benefits of using equity is that home loan interest rates are generally much lower than other types of credit, and the funds can be used for just about anything.This means a home equity loan can potentially help you save money, for example, if you're looking to buy a car or pay down other types of debt.
Some popular uses of home equity loans may include:
As with any type of financial product, there are some things to consider before taking out a home equity loan.
For example, you may want to watch out for:
As always, be sure to consult with your financial adviser or a qualified mortgage broker for help finding the right solution for your particular circumstances.