Understanding Home Equity
Many Cambridge homeowners are unaware of the financial resources they have available to them through a home equity loan in Cambridge. We often turn to credit cards and other high-interest loans when financial issues arise, but we have a far greater resource available. Home equity is the value of your home, minus the debts secured against the home. This number is variable depending on the market value of your home. Real estate markets are changing and home values change depending on where you live. Cambridge homeowners should seek the help of a lending expert to help advise what type of equity financing is available to them.
There are many reasons why you may want to access a home’s equity. These can include:
- Consolidating debts into one manageable payment with affordable interest compared to typical credit card rates.
- Completing any home improvement projects (that will also increase your home’s resale value).
- Fund tuition payments for yourself or a family member/child.
- Taking advantage of investment opportunities (small business or retirement investments).
- Handling any medical expenses not covered by insurance plans (medication, treatment, hospital costs).
- Immediate car repairs or purchasing a new vehicle.
- Purchasing a recreation property or taking a dream vacation.
How to Access Your Home Equity
A second mortgage is one type of equity loan borrowers can turn to when it comes time to meet any of these needs. When a second mortgage is borrowed against the equity, it is considered a home equity loan in Cambridge. This type of fixed-rate equity loan is typically (although not always) offered at a slightly higher rate of interest than a first mortgage. But these rates are quite often much lower than credit card interest rates (and are currently very competitive). A sum of money is lent all at once and interest is paid against the principal amount. This works well with large projects, investments, or debt consolidation.
What is a HELOC?
A more popular choice is a home equity line of credit
(HELOC). Like a standard line of credit, this is a sum of money that is available in the same way that a credit card has a limit available. You pay interest only on the amount you borrow against the home’s equity. You can pay the minimum payment (like a credit card) or pay substantial amounts against the principal loan without penalty. Many people choose this route because of the flexibility it offers. It provides a source of income akin to a "rainy day fund.” Financial advisors recommend you should have living expenses for three months in savings should any emergency arise. You can do this by using your home equity through a HELOC loan.
Regardless of your choice of home equity loan in Cambridge, utilizing a home’s equity is a way homeowners can consolidate debt, make investments, complete dream projects or take vacations and plan for future retirement needs. Meet with a lending expert who can help you choose what type of loan will best suit your financial needs and help you review the options available from big banks and private lenders.