At Bankers Group our goal is to provide a full range of options to our clients.
What is a home equity loan (HELOC)?
A home equity loan (HELOC) is a revolving, open-end loan extended under a line of credit and secured by the borrower's residential property. This loan type allows owners to borrow against the equity in their homes using the home as collateral. Collateral is property pledged as a guarantee the debt will be repaid.
A HELOC is also known as a second mortgage and allows you to tap into your home's built-up equity which is the difference between the amount your home could be sold for and the amount still owed.
Homeowners often use a home-equity loan for home improvements, to pay for a new car, or to finance their child's college education.
Who are home equity loans right for?
A home-equity loan is a good way to borrow money for two main reasons:
1. The interest rate is usually one of the lowest loan rates a borrower can get.
2. The interest you pay on the loan is usually tax-deductible.
As an example:
Let's say you buy a house for $200,000. You make a down payment of $20,000 and borrow $180,000. The day you buy the house, your equity is the same as the down payment -- $20,000: $200,000 (home's purchase price) - $180,000 (amount owed) = $20,000 (equity).
Fast-forward five years. You have been making your monthly payments faithfully, and have paid down $13,000 of the mortgage debt, so you owe $167,000. During the same time, the value of the house has increased. Now it is worth $300,000. Your equity is $133,000: $300,000 (home's current appraised value) - $167,000 (amount owed) = $133,000 (equity)
If you have questions about a home equity loan (heloc), please contact Dorothy Reik directly at: 818-226-6100.