Summer is a season to kick back, take a family vacation or get other projects done you were not able to accomplish while hunkered down for the winter. Maybe your project this summer is your daughterís wedding or getting your son ready to head off to college. No matter what the occasion, there always seems to be one main issue: How do we fund it? There are many options, but one of the best suited for these types of situations is the use of the equity in your home.Home equity is defined as the market value of a homeownerís unencumbered interest in their real property. In other words, it is the difference between what your home is worth and the outstanding balance of all liens on the property. For example, if your home has been appraised for $200,000 and you owe $125,000 on your mortgage, your equity is $75,000. The propertyís equity increases as the homeowner makes payments against the mortgage balance and/or as the propertyís value appreciates. However, most lenders take a percentage, usually 80 percent, of the homeís appraised value and then subtract that from the balance owed on the property. Thus, using the example above, your equity position would be $35,000.Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the financial institution advances the total amount of funds up front. The homeowner would repay this loan with equal monthly payments over a set term. A home equity line of credit, or HELOC, provides a source of funds that you can draw on as needed. A HELOC is a revolving line, similar to a credit card. The homeowner makes payments only on the amount borrowed.The appeal of home equity borrowing is the low interest rate and tax deductibility of interest. Consider this type of financing carefully, shop around, compare, read the fine print and discuss all fees before securing this type of loan. Talk with lenders about their equity programs. Just knowing the amount of the monthly payment or the interest rate is not enough. Pay attention to the fees and charges that are involved in the transaction. Do not hesitate to ask questions about the terms and conditions of your financing. Remember, your home is on the line.
