Equity on the House | Marlborough Savings Bank

April 11th, 2012

Finance your dreams with cash from your home.

Have you been dreaming about getting an extreme home makeover? Or would you like to help finance your child?s college education? If achieving these dreams seems challenging, don?t despair. Maybe they are possible, and you just might be sitting on the answer ? your home!

The equity in your home can help finance your dreams, or it can be used as a source of emergency funds. Home equity is the difference between your home?s fair market value and the outstanding balance of all liens on your house, such as your mortgage and other loans. Your property?s equity grows each time you pay your mortgage and also when its value appreciates.

While it?s no secret that home values have declined in recent years, you may have enough equity in your home to get a loan against it, and that may allow you to finance other things. Contact your financial institution to find out how much equity is in your home, and ask what the interest rates are for borrowing against it. They will tell you how much you can borrow and provide options for repayment terms.

There are two kinds of home equity financing to choose from: a home equity loan (HEL) and a home equity line of credit (HELOC). Both of these are considered to be a second mortgage. A HEL is a loan for a specific amount of money, and it has a set repayment schedule. This is a good option if you wish to borrow a lump sum of money all at once. You?ll then have regular monthly payments for a specified period of time.

A HELOC, on the other hand, is a good choice if you?re not certain how much money you?d like to borrow, if you aren?t in a rush for the cash, or if you would prefer a more flexible repayment schedule. You might even consider getting a HELOC so it?s available in case you want to finance something in the future or have access to cash for an emergency.

Either a HELOC or HEL is a more advantageous way to borrow money than using credit cards, which have higher interest rates. Another benefit of home equity borrowing is that the interest may be tax-deductible. (Always check with your accountant for details.)

Here are examples of ways to utilize home equity borrowing:

• Home improvements: Updating your home, such as renovating your dated kitchen or 1950s-style bathroom, can help to bolster your property value. Just don?t end up with the most expensive house on the block, as this could negatively impact your resale value.
• Education: Maybe now is the perfect time to return to college and finally get that degree, or help your teenager finance college tuition.
• If using a home equity loan to purchase a car, the interest may be deductible, where it is not for traditional auto financing.
• Resist the urge to tap into the equity in your home to fund your next vacation. Rather, consider it a potential source of funds for medical emergencies if other sources are unavailable.

If you?re thinking about getting a home equity loan or line of credit, it?s a good idea to compare the interest rates, costs, and monthly payments. Then you can make an educated decision as to which type of loan is best for you. call us today at 508-481-8300 or visit our equity page to learn more.

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