(SH) Need to Consolidate Debt? Your Home’s Equity might be a smart solution.
Perhaps your family is experiencing a financial hardship, and/or you have managed to run up high-rate balances from various creditors. Keeping up with multiple monthly payments is not only a challenge, you feel you’re falling behind. You’re not alone! This is a very common issue for consumers across the country.
We’re here to help you learn more about ways to manage your debt and your borrowing, so you can live more by getting out of debt sooner! One path to financial freedom might be consolidating your debt to one loan, lowering your interest and monthly payment with the help of your home’s equity.
What is Equity?
Equity is the difference between your home’s value and what you still owe on the mortgage. Steadily paying down your mortgage is one way to grow your home equity. And if real estate values go up in your area, your equity may grow even faster.
Calculating your Home’s Equity
- Your Homes Value
- x (Percentage your lender allows you to borrow, up to 80% in Texas)
- = Max equity that can be borrow.
- Less remaining balance on your mortgage
- Equals Total amount you can borrow
Click here for helpful Mortgage and Home Equity Calculators
Tapping Into Your Home’s Equity
In most states, including Texas, you can use your home’s equity as collateral for borrowing purposes. Many borrowers use the funds to remodel their kitchen or make various home improvements, which improves the home’s overall value. However, Home Equity loans can also be used to help manage medical hardships, send someone to college, make big purchases, and more. You’re able to use the equity in your home for virtually any need.
Home Equity Loan vs Line of Credit
Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the lender advances you the total loan amount upfront, much like a traditional loan. Home equity credit line, on the other hand, provide a source of funds that you can draw on as needed, much like a credit card.
Home Equity Loan: a loan for a fixed amount of money that is secured by your home. You repay the loan with equal monthly payments over a fixed term, just like your original mortgage.
Home Equity Line of Credit (also known as a HELOC): is a revolving line of credit, much like a credit card. You can borrow as much as you need, any time you need it, with a minimum advance of $4,000 in Texas. You may not exceed your credit limit. Because a HELOC is a line of credit, you make payments only on the amount you actually borrow, not the full amount available. HELOCs also may give you certain tax advantages unavailable with some kinds of loans. Talk to an accountant or tax adviser for details.
What if I Want to Sell My Home?
Good question. Any amount you borrow with a Home Equity Loan or Line of Credit that’s outstanding at the time you sell will be added to your mortgage balance due. Your must close out your Home Equity loan or Line of Credit when you sell your home.