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Your Guide to Home Equity: Understanding the Benefits and Risks


Apr 10, 2023



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When it comes to understanding the ins and outs of financing, home equity can be a tricky concept. With complex terms, multiple risk factors, and a wide range of tools and strategies available to leverage your own home - it’s no wonder borrowers are often overwhelmed. Whether you’re looking into refinancing options or considering the possibility of taking out another loan against your property; this guide brings you through all the essential information on how best to use your home as an asset in meeting future financial goals! In our comprehensive guide book we cover off everything from what is Home Equity (and how does it work), identifying risks and rewards associated with leveraging this type of funding right through to common practices when utilizing 6 different types of loans. Exploring these topics will provide some necessary clarity while exposing potential solutions readily available for those who choose to take advantage of the numerous opportunities home equity has to offer. So let's get started!

What is Home Equity and How Does it Work

Have you ever heard the term "home equity"? Simply put, it's the portion of your home's value that you actually own. When you buy a home, you start to build equity as you pay off your mortgage. But how does it work? Let's say your home is worth $300,000 and you still owe $200,000 on your mortgage. That means you have $100,000 in equity. You can access this equity by either selling your home or taking out a loan against it. If you're in need of extra cash or looking to make home improvements, using your home equity can be a smart financial move. Just be sure to consider the risks and benefits before making any decisions.

Benefits of Investing in Home Equity

When it comes to building long-term wealth, investing in home equity is definitely a smart move. By owning a piece of property, you're essentially accumulating significant value over time, allowing you to tap into that equity when you need it most. Not only does this give you the ability to take out a loan or line of credit should you find yourself in a financial bind, but it also means that you'll end up with a significant payout when you eventually decide to sell your home. The best part? By investing in your home's equity, you're not only improving your financial standing - you're also creating a warm and welcoming space that you can enjoy for years to come. It's a win-win situation!

Different Types of Home Equity Loans

Did you know that there are different types of home equity loans? If you already have a mortgage on your home, you may be able to take out a home equity loan, which allows you to borrow against the equity you've built up in your property. There are two main types of home equity loans: a traditional home equity loan and a home equity line of credit (HELOC). A traditional home equity loan provides you with a lump sum of money upfront, whereas a HELOC works more like a credit card, with a limit that you can access as you need it. Both options can be useful for financing major expenses like home renovations, but it's important to understand the differences before deciding which one is right for you.

The Risks of Borrowing Against Your Home Equity

You're finally ready to upgrade your home. You need a pool and a new kitchen. How can you finance this without breaking the bank? Borrowing against your home equity may seem like a quick and easy solution, but beware of the risks. It's important to remember that your home is your biggest asset, and borrowing against it can put you in a vulnerable position. If you miss payments or are unable to keep up with the interest, your home could be at risk of foreclosure. Take the time to weigh the pros and cons and make sure you're prepared for the financial commitment before jumping into borrowing against your home equity.

Tips for Making the Most Out of Your Loan

Taking out a loan can be a bit intimidating, but it can also be the best way to accomplish your financial goals. Whether you're looking to make a big purchase or consolidate debt, there are some tips to keep in mind to make the most out of your loan. First, shop around and compare rates so you can get the best deal possible. It's also important to read the fine print and understand all the terms and conditions of your loan. Another tip is to only borrow what you need and can afford to repay, so you can avoid getting into a cycle of debt. And finally, make sure to make your payments on time, as this can help you establish and maintain good credit. With these tips in mind, you'll be well on your way to making the most out of your loan.

Questions to Ask Before You Make a Decision

Making a decision isn't always easy, and it can be especially challenging when you're faced with a lot of options. That's why it's important to ask yourself the right questions before you make any big moves. For example, have you considered all the potential outcomes of your choice? Will it align with your values and long-term goals? Is it something you're truly passionate about, or are you just going along with what others expect of you? Taking the time to think through these questions can help you make a decision that feels right for you and lead to a more fulfilling outcome in the long run.

Home Equity can be a great way to use the equity you have built up in your home. But it is important to weigh the benefits and risks before making any decisions. It can be overwhelming, so don't hesitate to speak with professionals who have experience in mortgages and loans, as well as friends and family for their opinions. Make sure you understand all the key concepts, read all of the fine print and take into account your income level. From there, you can make an informed decision that is best for you and your family. Ultimately, understanding home equity allows you to make educated decisions concerning investing in or borrowing from your home equity and become financially secure.

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Equal Housing Lender

Hitch, Inc. NMLS #2383367 #2383367

2158 NW Toussaint Drive. Bend, Oregon 97703

1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.

2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.

3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.

4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.

5. The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.